Full text of Press Releases of the United States Department of the Treasury : Volume 300

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TREASURY' DEP ARTr~ENT . LIBRARY
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TREAS.
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v.300

U.S. Department of the Treasury

PRESS RELEASES

TREAS~RY

NEWS

Department of the Trea...ry-:\W] wa~"~lIton, D.C. • Telellhone 588.2041
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For Release Upon Delivery
June 27, 1990
statement by
Nicholas F. Brady
Secretary of the Treasury
Good afternoon.
I'd like to begin with a few comments on
the important new Latin American initiative announced by the
President this afternoon, before commenting on the other economic
issues that will be discussed at the Houston Economic Summit and
taking your questions.
During the past year or so, as Eastern Europe has undergone
a dramatic political and economic reform effort, a quieter but
equally dramatic revolution has occurred in Latin America and the
Caribbean. There, a new generation of leaders has demonstrated
its commitment to market-based economic reforms that hold out the
prospect of a new era of growth and prosperity in our own
hemisphere.
President Bush, in recognition of the strong movement to
genuine economic reform and the great importance of the nations
of Latin America and the Caribbean to the United States, has
proposed a cooperative effort to strengthen our economic ties and
encourage economic growth and development throughout the Western
Hemisphere.
The President has already described the three pillars of
trade, investment and debt reduction. This balanced program is
designed to address obstacles to growth and development, while
requiring additional market-based economic reforms. Open trade
and investment policies are the key to economic growth and
opportunity for Latin America. They will create new
opportunities for the U.S., as well, as greater trade creates new
jobs throughout the Hemisphere.
This initiative will give added emphasis to discussions in
Houston about the efforts of the developed nations to encourage
the shift to market-oriented economic reform that is underway in
both Eastern Europe and Latin America. We expect that the heads
of state also will discuss the economic situation in the Soviet
Union and that the issue of assistance to the Soviets will be
raised.
NB-859

2

The summit also will address the issue of moving the Uruguay
Round to a successful conclusion this year.
A comprehensive
package of agreements is necessary by December in order to ensure
the health of the international trading system and encourage
continued growth in the industrial nations as well as the
developing countries and Eastern Europe.
It is especially
important to develop effective disciplines in the agricultural
sector, which is characterized by very serious and expensive
distortions.
Developed country export subsidies and trade
barriers in the agricultural area reduce foreign exchange
earnings by developing countries from agricultural exports.
The summit will take place in the context of a positive
world economic situation. The eight-year-old economic expansion
is expected to continue, with aggregate growth of the Summit
countries near three percent.
Inflation pressures in the G-7
industrialized economies have been easing, and while inflation
concerns warrant continued vigilance, these concerns should not
undermine the prospects for continued expansion.
We and the other G-7 members remain fully committed to the
economic policy coordination process, and we expect a strong
reaffirmation of support at the summit from the heads of state.
Progress has been made in reducing major trade and current
account imbalances, but more progress is necessary.
Surplus countries must bring down their external surpluses by
increasing investment relative to savings.
In deficit countries,
including the U.S., further progress in reducing budget deficits
and encouraging savings is required.
The heads of state will discuss progress made in the past
year in implementing the strengthened debt strategy, and we
expect that they will pledge continuing support to those nations
still struggling with debt problems and committed to fundamental
policy reforms.
The Summit will also include discussions of money
laundering. The Financial Action Task Force launched a year ago
in Paris recently concluded agreement on 40 action
recommendations that will facilitate greater international
cooperation in investigating and prosecuting money launderers.
The Houston Summit will seek to build on that progress.
Finally, the Summit will seek solutions to environmental
problems which are consistent with growth and development
objectives.
Now, 1111 be glad to take your questions.

TREAS,'Ui~Y

NEWS

Department of t . . y,NSUry • Washington, D.C . • Telephone 5&&-2041
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FOR IMMEDIATE RELEASE
June 27, 1990

CONTACT:

Office of Financing
202/376-4350

RESULTS OF AUCTION OF 4-YEAR NOTES
The Department of the Treasury has accepted $8,313
million
of $44,780 million of tenders received from the public for the
4-year notes, Series N-1994, auctioned today. The notes will be
issued July 2, 1990, and mature June 30, 1994.
The interest rate on the notes will be 8-1/2%.
The range
of accepted competitive bids, and the corresponding prices at the
8-1/2% rate are as follows:
yield
Price
8.49%*
100.033
Low
100.000
8.50%
High
8.50%
100.000
Average
*Excepting $5,000 at lower yields.
Tenders at the high yield were allotted 20%.
TENDERS RECEIVED AND ACCEPTED (In Thousands)
Location
Received
Accegted
28,589
$
27,469
Boston
$
7,694,521
42,130,441
New York
14,275
14,275
Philadelphia
45,924
40,924
Cleveland
296,100
59,100
Richmond
Atlanta
30,488
28,687
Chicago
1,338,578
201,570
st. Louis
50,452
30,852
47,678
Minneapolis
23,678
Kansas city
62,022
62,021
13,697
Dallas
13,697
San Francisco
667,874
62,874
53,731
Treasury
53,731
$44,779,849
Totals
$8,313,399
The $8,313 million of accepted tenders includes $796
million of noncompetitive tenders and $7,517 million of competitive tenders from the public.
In addition to the $8,313 million of tenders accepted in
the auction process, $342 million of tenders was awarded at the
average price to Federal Reserve Banks as agents for foreign and
international monetary authorities. An additional $500 million
of tenders was also accepted at the average price from Federal
Reserve Banks for their own account in exchange for maturing
securities.
NB-860

DEPARTMENT OF THE TREASURY

For Immediate Release

June 27, 1990

ENTERPRISE FOR THE AMERICAS - INICIATIVA PARA LAS AMERICAS
THE TRADE INITIATIVE
FACT SHEET
o

The trade initiative proposes a vision of a Hemisphere-wide
free trade zone with Latin America. It offers the
possibility of secure access to the u.S. market to those
countries willing to open their economies.
The trade initiative will encourage economic qrowth in
Latin America through expanded international trade and
investment among these countries and the United States.
Removal of trade and investment barriers will be an
engine for economic growth, opening up new markets,
generating more jobs and enhancing international
competitiveness for both Latin America and the United
States.

o

The successful conclusion of the Uruquay Round of
multilateral trade negotiations by December remains the
President's highest trade priority.
Increased liberalization through these negotiations
would yield the greatest benefits to these countries.
The Latin trade initiative will build on and complement
the results of the Uruquay Round.

o

Free Trade Agreements (ETAs). The key element of the trade
initiative is U.S. willingness to enter into comprehensive
Free Trade Agreements with other markets in Latin America
and the Caribbean -- particularly with qroupa of countries
that have associated for purposes of liberalization.
Interested countries must demonstrate a commitment to
economic reform, including trade and investment
liberalization and sound macroeconomic policies.
--

FTAs eliminate trade barriers between two countries
includinq:

..

the phased elimination of import tariffs:

••

elimination of non-tariff barriers, such aa import
quotas, licenses and technical barriers to trade;

- 2 -

·.

o

the establishment of clear, binding protection for
intellectual property rights;

••

rules to improve and expand the free flow of
goods, services and investment between the
countries; and

••

fair and expeditious dispute settlement
procedures.

Since the negotiation and implementation of Free Trade
Agreements are long-term projects, the Latin trade
initiative contains ~wo shorter. term elements:
Framework Agreements: The united st~tes is willing to
negotiate framework agreements for discussing trade
issues between the United States and groups of or
individual Latin American and Caribbean countries.
These framework agreements could be used to lay the
foundation for FTAs by serving as the means for
negotiating reciprocal reductions in trade barriers and
for consulting on specific bilateral trade and
investment issues.
Uruguay Round Offers: To encourage Latin American
participation in the global trading system, the United
States will seek to engage these countries in the
Uruguay Round of multilateral trade negotiations for
trade liberalization.
Specifically, the united States will make offers to cut
tariffs on products of interest to Latin America
countries, without waiting for them to make requests
for cuts in U.s. tariffs.
The United States will also offer tariff cuts greater
than the. SO percent cuts authorized by the Omnibus
Trade and Competitiveness Act of 1988.

o

o

The Administration will seek Congressional approval of
these reductions as part of the implementing
legislation for~he Uruguay Round.
,
Mexico r.presents a good example of this approach. We
already have a bilateral framework agreement, which has been
successful in liberalizing trade to the benefit of both
countries. On June 11, the Presidents of Mexico and the
United states agreed to move in a timely manner toward a
comprehensive Free Trade Agreement.
Conclusion: Two-way trade in goods and services between the
United States and Latin America was nearly $200 billion in
1989. The Program for the Americas promises to remove
ubstacles to trade and investment, allowing international
trade and our economies to flourish.

DEPARTMENT OF THE TREASURY

June 27, 1990

For Immediate Release

ENTERPRISE FOR THE AMERICAS - INICIATIVA PARA LAS AMERICAS
THE INVESTMENT INITIATIVE
FACT SHEET
Introduction
o

During the past decade the nations of Latin America and the
Caribbean have endured a difficult decade of painful
economic adjustment.

o

Diminished trade, debilitating financial imbalances, the
flight of their own citizens' capital, and the harsh reality
of insufficient growth have taken a heavy toll.

o

Today, policies designed to unlock the potential for
domestic and foreign investment are the region's stronges~
hope for financing sustainable growth in a world short of
resources.

The Investment Initiative
o

The investment elements of this program are designed to
encourage more open investment regimes to help the nations
of Latin America and the Caribbean attract indispensable
capital.

o

First, we propose to work to develop a new investment sector
loan program in the Inter-American Development Bank.
The program could provide both technical advice and
financial support for privatization efforts and
liberalization of investment regimes -- possibly in
conjunction with the World Bank.

o

In a parallel effort, we will seek support to .stablish a
multilateral investment fund to advance comprehensive
investment reforms in Latin America and the Caribbean.
This five-year multilateral fund would provide up to
$300 million per year in grants in response to broad
investment reforms.

- 2 -

These reforms would be specific, market-oriented,
investment policy initiatives and reforms aimed at
attracting foreign investment.
would also support efforts to privatize governmentowned industries and to finance worker training,
education, and health programs to develop vital human
capital.

~t

The United States would contribute $100 million
annually to the Fund and would seek matching
contributions f~om Europe ~nd Japan.
Because the Fund would be desiqned ~o aerv. aa an
incentive, funds would only be disbursed after reforms
were enacted.
The lOB could serve as a conduit and trustee for these
funds, which would complement both lOB and World Bank
sector lending programs.

DEPARTMENT OF THE TREASURY

For Immediate Release

June 27, 1990

ENTERPRISE FOR THE AMERICAS - INICIATIVA PARA LAS AMERICAS
THE DEBT INITIATIVE
FACT SHEET
Introduction
o

As a further incentive for investment reform, we intend to
build on the progress already being made in addressing the
debt problems of the region.

o

We have already seen in Mexico and Chile that reduced debt
servicing burdens, in combination with strong domestic
economic reforms, can have a strong positive impact on
capital flows and confidence in a nation's economy.

IPB Enhancements
o

For this reason we propose that the lOB become an additional
source of support for commercial bank debt reduction under
the existing debt strategy.

o

As in the IMF and World Bank, the availability of these
resources would be tied to economic reform efforts.

Official Bilateral pebt
o

o

We also recognize that many countries in the region are
burdened by large official bilateral debt, which has been
increasingly difficult to service on a timely basis.
To help address th;s problem, we propose to reduce U.S.
official debt obligations of Latin American and
Caribbean countries on a case-by-case basis.

bilater~l

o

To this end, the Administration will propose comprehensive
legislation to create under the auspices of the Treasury
Department a facility to carry out a range of operations in
support of new investment, capital repatriation, and
sustainable natural resource use in Latin America and the
Caribbean.

- 2 -

--

These operations would include the reduction of
concessional AID and PL-480 obligations, the receipt of
interest payments in local currency for environmental
purposes, and the sale of some CCC and Ex-1m credits.
This program will be available to Latin American and
Caribbean countries which have:
••

negotiated comprehensive IMF/World Bank economic
reform programs;

••

adopted major investment reforms in conjunction
with the lOB or othe~multilateral institutions;
and

••

negotiated commercial bank debt reduction
agreements under the existing debt .trateqy as
appropriate.

1.

Treatment of Bilateral Concessional Claims

o

We propose to reduce outstanding concessional AID and PL-480
claims, which total $7 billion for the Latin American and
Caribbean region, while preserving necessary revenues to
continue current spending in these programs.

o

For eligible countries, the United States will substantially
reduce outstanding principal of AID and PL-480 loans -provided necessary economic reforms are in place.
Reduced principal obligations would be repaid in annual
installments over several years, depending on the
individual circumstances of each country.

o

Although the amount of reduction will be undertaken on a
case-by-case basis, we expect it to be substantial, in some
cases more than SO,.

o

Participating countries would make interest payments in
local currency at an agreed concessional rate. The United
states would place these local currency resources in trust
funds to support environmental projects or programs agreed
with each country.

2.

Treatment of Bilateral Commercial Claims

o

We also propose to sell in the market a portion of
outstanding Commodity Credit corporation and Ex-1m Bank
loans to eligible countries in order to facilitate
debt/equity and debt/nature swap transactions.

-

3 -

o

Purchasers of the U.S. claims would leverage these claims
into local currency for investment or environmental
purposes, as now occurs with commercial bank debt paper
purchased in the secondary market.

o

Revenues from the sale of these non-concessional credits
would be returned to these programs for future lending.

Conclusion
o

This program will help improve confidence in Latin American
and Caribbean countries, encourage new investm.nt flows, and
stimulate a return of flight capital.

o

We would, of course, encourage other creditor governments to
take similar action.

DEPARTMENT OF THE TREASURY

For Immediate Release

June 27, 1990

ENTERPRISE FOR THE AMERICAS - INICIATIVA PARA LAS AMERICAS
ENVIRONMENTAL ASPECTS
FACT SHEET
o

In addition to building a stronger and more comprehensive
economic partnership, the program can be a major force for
environmental action in the Hemisphere.

o

As each nation moves to take advantage of the trade and
investment elements embodied in the Program, the resulting
new prosperity should ease pressure on scarce resources and
permit more attention to pressing environmental concerns.

o

The program incorporates two elements that will provide
enhanced support for environmental concerns.
The first is a provision that interest payments on
restructured concessional debt instruments will be
earmarked for environmental grants through new
environmental trust funds for eligible countries.
The second is the provision for commercial sales of a
portion of Export-Import Bank and CCC loans to
secondary markets for subsequent use in debt-for-nature
and debt-equity swaps.

Environmental Tryst funds
o

To reinforce efforts already underway and provide a firm
foundation of continuing support for environmental programs
in the ijemisphere, we have decided to seek authority to
redirect interest payments on restructured concessional
official bilateral'loans for qualifying countries.

o

Interest on official debt reduction instruments under this
program would continue to be paid at a concessional rate,
but would be accepted in local currency and placed into
trust funds for the purpose of supporting environmental
projects.

- 2 -

o

The interest accumulated in the trust funds would be used to
support long-term funding for environmental programs and
projects in the debtor country supported by the IBRD, lOB,
AID or qualified private environmental groups.

o

Once enabling legislation is approved, we are confident that
proposed environmental trust funds can become a major
vehicle for environmental support in the 1990's.

o

We anticipate that interest payments on new debt reduction
instruments for concessional bilateral debt would be at a
single fixed percentage rate for each country.
--

Quarterly interest payments could be made in local
currency or debtor government securities where
appropriate.
Amounts in the fund (including any interest earned)
would be used for grants in connection with qualifying
environmental projects in. that country.
All payments, whether in local currency or local debt
instruments, would have the value of amounts in the
trust funds maintained in real terms.

o

The environmental trust funds would have to be authorized by
congress.

o

Funds would be used to provide grant co-financing for
projects, programs or loans undertaken with the support of
the lOB, IBRD, AID, or qualified non-governmental
environmental organization.

Debt-for-Nature Swaps
o

As part of the Program's efforts to reduce official debt
burdens, we will be seeking authority to sell a portion of
outstanding bilateral commercial credits under Export-Import
Bank and Commodity Credit Corporation programs.

o

Some of these instruments aold would, in turn, be used to
fund additional action in support of the environment through
debt-for-nature swaps.

o

These would be similar to past debt-for-nature operations
using obligations to commercial bank. These have been done
with a number of countries, including Costa Rica, Bolivia,
and Madagascar.

THE WHITE HOUSE
Office of the Press Secretary
For Immediate Release

June 27, 1990

ENTERPRISE FOR THE AMERICAS - INICIATIVA PARA LAS AMERICAS
A NEW PARTNERSHIP FOR TRADE, INVESTMENT, AND GROWTH
FACT SHEET
Introduction
As nations in Latin America and the caribbean turn
increasingly to democracy and market-oriented economic reforms,
the President has proposed a new partnership to encourage growth
in the Americas. This partnership will be based on three core
initiatives addressing trade, investment, and debt. In addition,
it will strengthen environmental policy in the hemisphere.
During the past decade Latin America and the Caribbean have
faced a series of difficult economic challenges, reduced growth
and lost opportunities. This difficult economic period has
coincided with revolutionary political change. Democracy and
freedom are now the clear choice of the peoples throughout the
hemisphere.
In view of these developments, Treasury Secretary Brady was
asked to lead a review in the Economic Policy Council of U.S.
economic policy toward Latin America and the Caribbean. That
review is now complete and we are proposing a new economic
partnership in the hemisphere to meet the =hallenges ahead.
The Trade Initiative
o

The first pillar of this program is a broad-based trade
initiative which sets forth a vision and a challenge to
Latin America to.move toward a broad regime of free and fair
trade within the hemisphere.
Barriers to trade continue to be a serious obstacle to
qrowth and trade within our hemisphere Which seriously
lagged the pace of growth in world trade during the
1980's.

o

The most effective way of promoting long-term trade growth
in Latin America and the Caribbean and more fully
integrating these nations into the global trading system is
to successfully conclude the Uruguay Round.

- 2 -

o

The trade initiative contains three elements:
(1)

A comprehensive Free Trade Aqreement eFTA) tor Latin
America is our lonq-termqoal. We are prepared to
enter into FTAs with other markets in Latin America and
the caribbean -- particularly with qroups at countries
that have associated for purposes of liberalization.
As we have bequn to aee in our trade with Canada and
hope to see with Mexico, such aqreements can offer
aiqnificant and lastinq benefits tor both sides.

(2)

As an initial steppinq stone toward this end -- and for
those which are not yet positioned to embrace a free
trade aqreement -- we are prepared to develop bilateral
framework aqreements.
Such aqreements can'help establish principles for
bilateral cooperation on trade issues.

(3)

We are also prepared to work with Latin countries to
help address their specific trade concerns within the
Uruquay Round. To show our commitment, we will seek
authority for deeper tariff cuts on specific products
of interest to them.

The Investment Initiative
o

The second pillar of our proqram is an investment initiative
to unlock the potential for domestic and foreiqn investment,
encouraqe capital flows, reduce debt burdens, and improve
the environment.

o

To encourage appropriate policies and help the nations of
Latin America and the Caribbean attract indispensable
capital, the United States is prepared to pursue a program
on several fronts.

o

First, we propose to work to develop a new investment sector
loan proqram in the Inter-American Development Bank.
The program could provide both technical advice and
tinancial support for privatization efforts and
liberalization of investment regimes -- possibly in
conjunction with the World Bank.

o

Second, in a parallel effort, we will seek support to
establish a multilateral investment fund to advance
comprehensive investment reforms in Latin America and the
Caribbean.
This Fund would provide qrants of up to $300 million
annually in response to broad investment reforms.

-

3 -

It would also support efforts to privatize qovernmentowned industries and to finance worker traininq,
education, and health proqrams to develop vital human
capital.
The IDB would administer these funds, which would
complement both IDB and World Bank sector lending
proqrams.
The Debt Initiative
o

The third pillar provides additional support for debt and
debt-service reduction in Latin America and the Caribbean in
an effort to provide further incentives to investment reforn
and a more flexible basis for hemispheric growth.

o

The first part of this initiative builds on the proqress
already being made in addressing the debt problems of the
region by proposing that the IDB become an additional source
of enhancements under the existing debt strateqy.
These enhancements would be used to back specific
transactions negotiated by Latin American and Caribbean
countries with their commercial banks.
As in the IMF and World Bank, the availability of these
resources would be tied to economic reform efforts.

o

Second, to address the growing problem of official debt, we
will propose legislation to permit substantial reduction and
restructuring of existing u.S. concessional loans to Latin
American and Caribbean countries with serious debt servicinq
difficulties.
Action would be taken on a case-by-case basis for
countries in the region which adopt strong economic
reform programs in conjunction ~ith the rMF and World
Bank, pursue comprehensive investment reforms with the
Inter-American Development Bank or other multilateral
institutions, and complete commercial bank debtreduction programs as appropria~e.
We expect this program to produce substantial debt
reduction on concessional u.S. AID and PL-480 claims,
particularly for the smaller countries of the region.
At the same time, new flows of foreiqn assistance to
the region would be maintained.

- 4 -

--

To underscore our commitment to sustainable natural
resource management, interest payments on the
restructured concessional claims will be accepted in
local currency and placed in trusts to support
environmental projects agreed with each participating
government.

Finally, we will also seek authority to sell a portion of
outstanding bilateral commercial credits under Export-Import
Bank and Commodity Credit corporation programs.
--

Ex-Im and CCC credits sold would be used to facilitate
foreign investment and fund additional action in
support of the environment through debt/equity and
debt-for-nature swaps.

OVERSIGHT BOARD
RESOLUTION FUNDING CORPORATION
FOR IMMEDIATE RELEASE
June 28, 1990

CONTACT:

Diane Casey
(202) 786-9672

The Resolution Funding Corporation (REFCORP) announces that
it will auction 30-year bonds in July 1990.

The amount and exact

maturity date of the bonds to be auctioned will be announced on
Tuesday, July 3, 1990, and when-issued trading can begin at that
time.

The securities will be auctioned on Tuesday, July 10, and

will settle on Tuesday, July 17.

TREASURY NEWS

Department of the TreasUry • washington, D.C . • Telephone 5&&-204t
CONTACT: Office of Financing
202/376-4350

FOR IMMEDIATE RELEASE
June 28, 1990
RESULTS OF TREASURY'S 52-WEEK BILL AUCTION

Tenders for $10,264 million of 52-week bills to be issued
July 5, 1990,
and to mature
July 5, 1991
were accepted
today. The details are as follows:
RANGE OF ACCEPTED COMPETITIVE BIDS:
Discount
Rate
Low
High
Average -

Investment Rate
(Eguivalent Coupon-Issue Yield)

7.51%
7.53%
7.52%

8.08%
8.10%
8.09%

Price
92.386
92.365
92.376

Tenders at the high discount rate were allotted 12%.
TENDERS RECEIVED AND ACCEPTED
(In Thousands)
Location
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
TOTALS

Received
$

30,790
27,657,715
15,250
29,065
31,115
31,320
2,601,880
22,695
11,650
44,370
12,595
882,535
291,860

Accepted
$

30,790
9,572,115
15,250
29,065
31,115
21,320
123,880
18,695
11,650
44,360
12,595
61,135
291,860

$31,662,840

$10,263,830

$28,128,560
834,280
$28,962,840
2,700,000

$ 6,729,550
834,280
$ 7,563,830
2,700,000

$31,662,840

$10,263,830

Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS

An additional $265,000 thousand of the bills will be issued
to foreign official institutions for new cash.
NB-86l

Removal Notice
The item identified below has been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to copyright protections.

Citation Information
Document Type: Transcript

Number of Pages Removed: 20

Author(s):
Title:

Treasury Department Press Briefing of the Upcoming Houston Economic Summit (Briefer: David Mulford, Under S

Date:

1990-06-28

Journal:

Volume:
Page(s):
URL:

Federal Reserve Bank of St. Louis

https://fraser.stlouisfed.org

TREA tJcRV NEWS

Department of the

~cI'S'~ ~t.JW •• hlnllton,

D.C •• Telephone 5&&·2041

Con~ac~:

June 29, 1990

Bob Levine

(202) 566-2041

EKCHANGE OF LETTERS ON IMPORTATION OF SOVIET ORIGIN NICKEL

The Depar~men~ of ~he Treasury announced ~oday ~he Governmen~
of ~he Union of Soviet Socialist Republics (USSR) and the
Government of ~he Uni~ed States have completed an exchange of
letters concerning U.S. imports of nickel and nickel-bearing
products (such as s~ainless &~eel) exported from ~h. USSR.
The letters establish procedures under which a Soviet trade
organization, Raznoimport, ~aking into consideration ins~ruc~ions
of the Ministry of Foreign Economic Relations, will certify that
exports of nickel and nickel-bearing products in~ended for
importation into the Uni~ed States are exclusively of Soviet
origin.
Prior to the institution of these procedures, ~hese commodities
from the USSR were prohibited entry into the Uni~ed Sta~es under
regulations administered by the Office of Foreign Assets Control
of the Depar~ment of the Treasury.
Cer~ificates of origin are available for nickel and
nickel-bearing products from the Norilsk Mining and Metallurgical
Plant, Norilsk, Krasnoyarsk Region, USSR, and the Nickel
Industrial Amalgamation, Monchegorsk, Murmansk Region, USSR.

Certificates of origin mus~ be presented to U. S. Customs
officials at the time of impor~ation. On or after June 28, 1990,
the effective date of the procedures, all shipments of nickel and
nickel-bearing products from the Sovie~ Union must be accompanied
by a certificate to be permitted entry through U.S. Customs.

NB-862

TREASURY NEWS

Department of the Treasury • Washington, D.C . • Telephone 5&&-2041
CONTACT:Office of Financing
202/376-4350

FOR IMMEDIATE RELEASE

July 2, 1990
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $8,829 million of 13-week bills and for $8,814 million
of 26-week bills, both to be issued on
July 5, 1990,
were accepted today.
RANGE OF ACCEPTED
COMPETITIVE BIDS:

Low
High
Average

13-week bills
maturing October 4, 1990
Discount Investment
Rate
Rate II
Price
7.72%
7.73%
7.73%

7.98%
7.99%
7.99%

26-week bills
maturing January 3, 1991
Discount Investment
Price
Rate
Rate 1/
7.58%
7.60%
7 . 60~~

98.049
98.046
98.046

7.99%
8.0U
8.01%

96.168
96.158
96.158

Tenders at the high discount rate for the 13-week bills were allot ted
Tenders at the high discount rate for the 26-week bills were allotted
TENDERS RECEIVED AND ACCEPTED
(In Thousands)
Received
Received
AcceEted

Location
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
TOTALS

~

Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS

$

43,235
30,096,775
21,805
59,000
43,230
33,605
3,114,450
36,015
17,530
46,840
40,080
1,112,325
638,815

$

40,535
7,670,530
21 ,805
58,910
43,230
32,605
64,110
16,015
12,530
45,400
30,080
154,325
638,815

$

50,790
21,946,110
18,155
49,610
47,290
40,720
1,560,145
34,850
27 ,100
59,325
38,475
824,585
561,720

70~{'

98~6

.
.

AcceEted
$

50,790
7,643,750
18,155
49,610
47,290
40, 720
183,245
28,730
26,900
59,325
33,375
70,585
561,720

$35,303,705

$8,828,890

$25,258,875

$8,814,195

$31,404,810
1,538,940
$32,943,750

$4,929,995
1,538,940
$6,468,935

$20,913,920
1,342,775
$22,256,695

$4,469,240
1,342,775
$5,812,015

2,216,135

2,216,135

2,300,000

2,300,000

143,820

143,820

702,180

702,180

$35,303,705

$8,828,890

$25,258,875

$8,814,195

An additional $81,780 thousand of i3-week bills and an additional $ 369,320
thousand of 26-week bills will be issued to foreign official institutions for
new cash.

II

Equivalent coupon-issue yield.

NB-863

JOINT REPORT
of the
U.S. - JAPAN WORKING GROUP
on the
STRUCTURAL IMPEDIMENTS INITIATIVE

June 28, 1990

The Honorable George Bush
President of the United
states of America
Washington, D.C.

His Excellency
Toshiki Kaifu
Prime Minister of Japan
Tokyo

Pursuant to the decision made by the U.s. and Japanese
Heads of Government at the Economic summit in July 1989, the
U.S.-Japan Working Group on the Structural Impediments
Initiative (SII) presents the attached Joint Report on the SII
talks.
We believe that the attached report contains
significant, extensive efforts and actions by both governments
that should contribute to further reductions in external
payments imbalances. These actions should also lead to more
efficient, competitive, and open markets, promote sustained
economic growth and enhance the quality of life in both Japan
and the United states.
The report also establishes a follow-up mechanism to
review progress achieved and to discuss matters relevant to
problem areas and the need for actions to address them. Under
this mechanism, the Working Group will meet regularly and
produce an annual report respectively on the progress made by
each country toward solving its structural problems, thereby
contributing to the reduction of external imbalances.
Richard T. McCormack
Under Secretary of State

Koji Watanabe
Deputy Minister for
Foreign Affairs

Charles H. Dallara
Assistant Secretary of
the Treasury

Makoto utsumi
Vice Minister for
International Affairs
Ministry of Finance

S. Linn Williams
Deputy U.S. Trade
Representative

Naomichi Suzuki
Vice Minister for
International Affairs,
Ministry of International
Trade and Industry

J. Michael Farren
Under Secretary of Commerce
John B. Taylor
Member, President's
Council of Economic Advisers
James F. Rill
Assistant Attorney General

Tsuneo Unno
Vice Mininter for Foreign
Economic Affairs,
Economic Planning Agency

JOINT REPORT
of the
U.S.-JAPAN WORKING GROUP
on the
STRUCTURAL IMPEDIMENTS INITIATIVE (SII)
Tokyo, Japan
June 28, 1990

TABLE OF CONTENTS
Introduction
Report by the Japanese Delegation
o

Japanese Saving and Investment ?atterns

o

Land Policy

o

Distribution system

o

EXclusionary Business Practices

o

Keiretsu Relationships

o

pricing Mechanisms

I

II
III
IV
V

VI

Report by the U.S. Delegation
o

u.S. saving and Investment Patterns

o

Corporate Investment Activities and Supply
Capacity: Improvement of U.s. Competitiveness

13

o

Corporate Behavior

18

o

Government Regulation

21

o

Research and Development

24

o

Export Promotion

28

o

Workforce Education and Training

30

1

STRUCTURAL IMPEDIMENTS INITIATIVE
The Japan-U.S. Working Group on the Structural Impediments
Initiative (SI I) provides the attached Final Report on the SI I talks.
The Working Group bel ieves that this report is a historic document that
contains significant, extensive efforts and actions on both sides.
These actions should complement the economic pol icy coordination
efforts which have been made through multi lateral fora and should
contribute to a reduction in external payments imbalances. In this
regard, it IS to be noted that wh i Ie the large exte rna I i mba Iances of
the two countries have shown substantial reduction in recent years, the
two Governments are strongly committed to make efforts for the further
reduct ion of the i r respect i ve exte rna I i mba Iances. The above-men t i oned
actions should also lead to more efficient, open and competitive markets,
promote sustained economic growth and enhance the qual ity of I ife In
both Japan and the United states. Both Governments are firmly
determined to achieve these goals.
The SII was launched by President Bush and former Prime Minister
Uno in July 1989 to identify and solve structural problems in both
countries that stand as impediments to trade and to balance of payments
adjustment with the goal of contributing to the reduction of payments
imbalances. Five Plenary sessions of the Working Group were held
between September 1989 and June 1990. An Interim Report on progress
was issued on Ap r i I 5, 1990.
Both the U.S. and Japanese Governments have already taken initial
steps and have developed plans for further actions to ensure continuing
momentum in solving the structural problems that impede balance of
payments adjustment. Both Governments bel ieve that the Final Report
represents substantial progress to address structural problems.
The Working Group strongly reaffirms its continuing commitment to
solve structural problems in both countries that stand as impediments
to trade and balance of payments adjustment.
In order to jointly follow up the year-long SII exerCise, the SII

Working Group wi II continue the meetings under the interagency
structure of the SII

in a flexible,

open and evolving manner which IS

characteristic to the SII, and agreed to meet three times In the first
year and twice a year thereafter,
and

0

most probably in spring and autumn

the r tim e s mu t u a I I y a 9 r e e d• a t a I eve I

Under Secretary/Assistant Secretary,

0

f Vic e / De put y r~ i n i s t era n d

to :

review progress achieved regarding Issues identified In the Final
Repo rt

discuss matters relevant to problem a reas a I ready identified In
the S II and the need for act ions to address them; and

produce in spring of each year a written report respectively on
the progress made by each country toward solving its structural
problems thereby contributing to the reduction of external
imbalances,

review the reports together,

and issue them with a

joint press release.

After three years,
process,

the SII Working Group wi II review the follow-up

taking into account measures in the Final Report that extend

beyond three years.

These talks have taken and wi I 1 take place outside Section 301 of
the U.S. Trade Act.

The Working Group bel ieves that in addition to its beneficial
effects on the U. S. and Japanese econom i es,

the S I I process wi I I

benefit other countries and the global economy generally.

Saving and Investment Patterns
I.

Basic Recognition

1.

Reduction in the Current Account Surplus

As a result of appropriate pol icies pursued to sustain sol id
economic growth led by strong domestic demand, Japan's current account
surplus has been reduced remarkably from 4.5 per cent of GNP in FY 1986
to an estimated 1.9 per cent in FY 1989, which is less than half the
level of FY 1986. This downward trend is projected to continue in FY
1990.
Impressive growth of imports, along with increases in overseas
travel expenditures by the Japanese people reflecting in part an
increased emphasis on leisure, has contributed to this positive trend.
U.S. exports to Japan have increased faster than U.S. exports to the
rest of the wor Id.
To make further progress on the basis of this positive trend, the
Government of Japan wi I I continue to undertake economic pol icies aimed
at promoting sustained non-inflationary growth led by domestic demand.
The Government of Japan recognizes the need to continue to reduce
its current account surplus and strongly reaffirms its commitment to
work actively toward that end. Whi Ie the Government recognizes the
uti I ity of making avai lable savings for certain other parts of the world.
including Eastern Europe, it further recognizes that a further
reduction of Japanese current account surplus is compatible with
Japan's abi I ity to continue to export long-term capital. Thus, the
Government commits itself to place a high priority on continuing a
steady reduction in its current account surplus which wi II, together
with the efforts of other major industrial countries, foster world
growth and financial market stabi I ity. The Government of Japan also
recognizes that a reduction of the imbalance between domestic savings
and investment is important to that process. This wi I I help further a
reduction in the current account surplus.

2.

Recognition of the Need for and Importance of Social Overhead
Capital

Improvement

The Government of Japan recognizes that there remain areas where
Japan is st i II behind other major industrial ized countries in terms of
the levels of social overhead capital accumulation,

though the pace of

improvement has been rapid -- partly as Japan was historically a slow
starter in this field -- with annual public investment (Ig) four times
as large as that of the U.S.

measured against GNP.

The Government of Japan will cont i nue to pursue its po Ii c i es to
Increase and promote steady accumulation of social overhead capital,
based on the keen recognition of the need for and importance of social
ove rhead cap ita limp rovemen t.

This would,
demand,

through sustained non-inflationary growth of domestic

fac iii tate further reduct ion in the current account surp I us.

II.

Measures to be Taken

1.

Positive Measures In the FY

(1)

FY 1990 budget was enacted on June 7,

1990

Budget

with the expenditures for

publ ic works which surpass the historic high level of the previous
fiscal year at ¥7,444. 7 bi II ion,

despite the revenue constraint caused

by unsuccessful sales of NTT stocks in the previous fiscal year,

and

notwithstanding the vigorous expansion of the economy expected in FY
1990 which does not warrant additional stimulus.

The investment by the publ ic sector on GNP basis (19) UJould add up
to ¥26.3 tri II ion,

including the publ ic works expenditure by local

governments financed entirely by themselves (in the Local Publ ic
Finance Program) and the expenditures of the publ ic work executing
agencies financed through the FILP (Fiscal
which rose 7 per cent,

respectively,

Investment and Loan Program)

over FY 1989.

(2) Total cumulative expenditures in seven out of eight sectoral long
-term plans, which are to expire at the end of FY 1990, are expected to
exceed the projected target expenditures as a result of further
emphas i s p Iaced on soc i a love rhead cap ita I In the FY 1990 Budget.
2.

Toward Further Improvement

The Government of Japan intends to increase and promote steady
accumulation of social overhead capital, from a medium to long term
perspective, as the nation heads for an aging society toward the twenty
-first century.
(1)

For that purpose:
The Gove rnment of Japan has new I y launched t he "Bas i c PI an fo r
the Publ ic Investment", which serves as guiding principles for steady
accumulation of the social overhead capital toward the twenty-first
century. This plan covers a decade from FY 1991 to FY 2000, and
provides a basic blueprint of the basic direction of the publ ic
investment for the decade. Firm implementation of the publ ic
investment over the medium term based on this Plan, with due regard to
balanced development of the economy, is expected to provide a basis for
sustainable non-inflationary growth led by strong domestic demand, and
this should, along with other measures, faci I itate further reduction in
the current account surplus.
( i)

The annual total of publ ic investment and of investment in each
sector wi I I be determined through yearly budgets, according to
prevai I ing circumstances, and compatible with the basic I ines of this
p I an.
Bui Iding on the principle "to boost domestic investment, improve
social overhead capital and to reduce the shortage of investment
relative to savings and to the size of the Japanese economy," the Plan
includes the aggregate investment expenditure of about 430 tri I I ion yen
for the decade, up drastically from the estimated 263 tri II ion yen in

the prevIous decade from FY 1981 to FY 1990. (note 1)

This plan shows

that the Government of Japan has taken the decisive step toward
considerably increasing the publ ic investment far above its previous
pace.
This plan enunciates that the share of publ ic investment related
to "I iving environment and cultural functions (note 2)," which is
direct Iy linked to the eve ryday life of the peop Ie, wou Id be ra i sed
from a few points over 50% of the total in the previous decade to about
60% of the total during the period of the plan.
Through the firm implementation of the plan, the levels of social
overhead capital accumulation of Japan would be broadly comparable to
those of other major industrial countries at the beginning of the twenty
-first century.
In addition, the aggregate expenditures of the investment by such
entities as JR and NTT which used to be included in the publ ic
investment prior to their privatization, are expected to be
approximately 25 tri II ion yen for the coming ten years. (note 3) This
I s the amount of expend i ture that the Government of Japan fu II y expects
to be rea I i zed.
Adding this with the 430 tri II ion yen shown above would bring the
total figure to about 455 tri" ion yen.
(note 1)

The aggregate investment for the first five years calculated
on the basis of an average annual increase is expected to be
about 182 tri II ion yen.

(note 2)

Publ ic investment related to "I iving envi ronment and cultural
functions" includes investment for; water supply. sewers,
parks, green spaces, waste d i sposa I fac iii ties, hous i n9,
local roads, subways, and welfare as wei I as educational
facilities.

(note 3)

Estimation based on the continued current annual expenditure.

(ii) As to the eight categories of social overhead capital whose

current plans are to expire at the end of FY 1990 (i.e., March 1991),
the ministries concerned wi I I formulate larger long-term plans with the
positive and specific targets as indicated in Table 1. By the end of
FY 1990, yen figures shal I be developed for most of the eight sectoral
plans which are conistent with the ten year plan In order to improve
the Qual ity of I ife in Japan. It is envisaged that larger long-term
plans for certain other key areas, such as roads, wi I I also be
formulated as the current plans expire on a scale simi lar to that for
these plans.
(iii) The yearly expenditure for social overhead capital should be

decided flexibly considering the prevai I ing economic and fiscal
conditions, paying due attention to avoiding inflation and overheat of
the economy as wei I, given the significant role that the publ ic
investment plays as a counter-cycl ical measure in Japan, and compatible
with the basic I ines of the plan and the targets in (ii) above.
(2) In al locating the expenditure among various types of social
overhead capital, utmost consideration should be given, as much as
possible, to those closely I inked to the improvement of the Qual ity of
life.
(3) In the imp Iementat i on of pub Ii c investment, inc Iud i ng the above
plans, the Government of Japan wi I I make effective use of the
legislative form of the budget that authorizes contracts incurring
treasury I iabi I ities over the succeeding fiscal years, in order to
secure maximum efficiency in executing publ ic investments within the
constitutional framework of the single year budget system.
(4) The Government of Japan wi I I make more effective use of the FILP
(Fiscal Investment and Loan Program) funds to improve social overhead
capital. Such effective use would include financing urban
redevelopment projects through the Japan Development Bank. In
al locating the FILP funds, utmost consideration should be given, as
much as possible, to housing and other projects contributing to
enhancement of the Qual ity of I ife of the people. More effective use

of the FILP funds wi I I also include attaching major importance to
al location of the funds, for feasible projects, with a view to
achieving the long-term plans of social overhead capital in such areas
as hous i ng, roads and a i rpo rts.
(5)

The Government of Japan wi I I see to it that overal I efficiency

1S

increased in promoting the complex multi-jurisdictional development
projects like the Kansa i Internat i ona I Ai rpod and the Tokyo Bay Area
Development, by amel iorating systems for securing better communication
and closer cooperation among the related ministries.
(6) Land Use, Deregulation. etc.
( i ) The Gove rnment of Japan wi I I g (ve due cons i de rat i on to effect i ve
uti I ization of publ icly held lands in metropol itan areas for urban
faci I ities, urban redevelopment, and publ ic housing projects to
ensure smooth implementation of publ ic works. The Government of
Japan wi I I see to it that the discharged track yard site in
Shiodome should be highly uti I ized as multi-functional urban space
responding to the needs arising from international ization, and as a
regional transportation hub. Related urban infrastructure including
subways and roads should be furnished as wei I.
(ii )The Prime Minister's Office wi 11 be central in vigorously promoting
uti I ization of super-subterranean space (about 50 meters below
surface or deeper in metropol itan areas) for social overhead
capital including urban infrastracture in metropol itan areas and
thus securing more effective use of land. Wide-ranging issues--Iegal,
safety, and environmental--need to be addressed carefully in the
process.
( iii )Mo re act i ve use of va r IOUS resou rces In the p r i vate secto r, such as
financial resources, technology and know-how, is important for the
improvement of social overhead capital, as seen in such cases as
the Kansai International Airport and the Trans Tokyo Bay Road
Project. The Goverment of Japan wi II cont inue to promote further
deregulation and provide various incentives as needed in order to
make the best use of these private sector resources in the
improvement of the social overhead capital.
( iv ) The Gove rnmen t of Japan wi I I effect i ve Iy act i vate the spec i a I act

which alms at promoting organized development of housing sites and
rai Iways in greater metropol itan areas, thereby improving the
Qual ity of I ife of the residents and promoting orderly development
of the reg ion.
For example, discussions are being held on the formation of
the basic plan, including the appropriate form of managing entities,
for a new rai Iway I ine called the "Joban New Line. "
(7) The Government of Japan reconfirms the principle of non
-discrimination in the Japanese construction market, and wi I I continue
to work with the U.S. Government in faithfully implementing and
reviewing the provisions of the U.S.-Japan Major Projects Arrangements.
3.

Private Consumption: Leisure Opportunity and Flexibi I ity In
Consumer Finances

(1) As to curtai I ing work hours, the Government of Japan launched a
trial, starting this Apri I, of 40 hour weeks for those government
employees on shift work schedules, to pave a road to complete 5 day
weeks for al I government employees, and wi I I encourage curtai I ing work
hours in the private sector.
(2) As to improvement of consumer credit convenience, the interim
report by the Credit Industry Committee of the Counci I on Credit Sales
recommends that "concerning the introduction of revolving credit
funct i on to the cred it cards issued by bank aff iii ated compan i es, it is
appropriate to al low bank affi I iated credit card companies to register
under the Credit Sales Law within two years, with the existing
restriction on access to bank teller machines by credit card companies
removed." The Government of Japan wi I I endeavor to implement this
recommendation after consulting with the parties concerned.
(3) To Quote a few examples of extended operating hours of automated
teller machines, major financial institutions have since May lengthened
operating hours of their machines on Saturdays, and some institutions
have started to operate their machines on Sundays as wei I.
The Government of Japan wi I I welcome business decisions of the

financial institutions to lengthen operating hours of their tet ter
machines when they so cecide based on their own commercial
considerations, whi Ie there are no restrictions on the operating hours
at present.

(Tab leI)
Category
Housing

i Sewers
I
I
I

Targets of the Plans
ITo inc rea sea vera ge floor spa ce per un itt 0 a ppro x. 95 m
in FY 1995, aiming at improving Qual ity of housing
stock (cf. average floor space per unit in 1988 was
i 89 m').
I To Increase sewerage service coverage ratio by approx.
[ 10 percentage ~oints during the.p~riod of the plan and
to promote drainage programs, aiming at better urban
environment (cf. sewerage service coverage ratio in
I March 1989 was 40%).
I To inc rease park space pe r cap ita to mo re than 7 m in
FY 1995, aiming at better urban environment with ful I
I of greenery and amenity (cf. park space per capita In
i March 19S9 was 5.4 m').
i To increase waste treatment percentage ratio to
'the mid-SO's in FY 1995, aiming ~t more hygienic and
comfortable I iving environment (cf. waste treatment
percentage ratio in March 1989 was 78%).
To con st ruct s i dewa I ks, etc. of app rox. 25, OOOkm in
aggregate during the period of the plan, where current
risk to pedestrian safety is high (cf. sidewalks, etc.
I in March 1989 were 99,712km in aggregate length).
! To construct berths for foreign trade terminal of approx.
30km in aggregate during the period of the plan, to
cope with increased foreign trade cargoes and enlarged
vessel size (cf. existing foreign trade terminal berths
in March 1989 were 60km).
To increase the index of aggregate runway length as
I measured against population and
land area to approx.
880 in FY 1995, and to initiate new construction of a
substantial amount during the period of the plan in
order to accommodate future aviation needs, with due
regard to the levels in industrial nations. This would
result in increasing aggregate runway length by 18%
during the period of the plan (cf. the index of
aggregate runway length in March 1989 was 742).
To increase improvement ratio of seashore which needs
protection by approx. 10 percentage points during the
period of the plan (cf. the improvement ratio in March
1989 was 40%).
1

'I'

I Parks
I
Waste
I Disposal

Traffic
Safety

Port
Fac iii ties

Airports

Seashore

1

i

!

I
i
I
i
I

!

II

Land Po I icy
I.

Basic Recognition

The land problem IS one of the most serious domestic problems
facing the Government of Japan. The Government of Japan has, as a
first step, already enacted the Basic Land Act (*) last December.
Recognizing the need such as for the increase of supply of housing, as
wei I as the supply of land for bui Idings, with necessary faci I ities,
such as publ ic and commercial faci I ities, the Government of Japan wi II
implement a wide range of specific measures as set forth In guidel ines
such as the Priority List of Land Pol icies, also announced last December,
and as set forth below.
Due to these measures, it is expected that housing and other
demand wi I I be boosted, lead i ng to greate r i mpo rt oppo dun it i es.
1.

Promotion of further supply of housing and land for bui Idings In
metropolitan areas.

2.
Comprehensive review and adjustment of the land taxation system
with the obejctive of making taxes more equitable, neutral and simple.
3.

Greater uti I ization of idle and underuti I ized land owned by the
central or local governments or other publ ic land.

4.

Improvement and increase of infrastructure necessary to faci I itate
increase in the supply of housing and land for bui Idings.

5.

Review of the Land Lease Law and the House Lease Law.

6.

Review of divisions between Urbanization Promotion Areas and
Urbanization Control Areas and promotion of specific deregulation
measu res.

7.

Ratlo~2.~lzatlon of the official assessment of land value.

(*)

The Basic L2.nd Act stipulates:

(a)

~aslc principles regarding

land such as giving priority to publ ic

welfare;
(~)

responslbi I ities of the centra! and local governments, private
enterprises and indiViduals: and

(c)

basic elements concerning land pol icies.

I I.

Measu res to be Taken

1.

In order to take the following measures, the Government of Japan

has already enacted in this June the amendments of the "Special
Measures Law for Faci I itating Supply of Residential Land etc.

in Major

Metropol itan Areas", the "City Planning Law" and the "Bui Iding
Standards Law".
(1)

Improvement of the existing system to enable the formulation of

master plans regarding the supply of housing and residential

land

across two or more prefectures.
(2)

Establ ishment of a new system for identifying and promoting the

utilization for housing, business and commercial purposes etc. of,

idle

land such as unused plant sites.

(3)

Improvement of current city planning and other systems in order to

facilitate the conversion of agricultural
promotion areas to residential

land within urbanization

land.

In line with (2) above, the Goverment of Japan wi II establ ish a
system for identifying idle land by the end of 1990 through the
amenCr:1ent of the "City Planning Law".

The Government of Japan wi II

encourage local authorities to actively and expeditiously uti I ize the

-

11- 2 -

system. Th rough these measu res, substan t ia I Inc rease of the supp Iy of
hous i ng and res i dent i a I Iand in met ropo I i tan areas wou Id be expected.
2.
(1) The Government Qf Japan is conducting a comprehensive review
on the land taxation system on the basis of such basic principles of
taxation as equity, neutral ity and simpl icity, and in accordance with
the principles expressed by the Basic Land Act and with other land
po I i c i es. A study has been in i t iated by the Sub-Comm i ss i on on Land
Taxation established in April under the Government Tax Commission.
The Sub-Commission has met almost once a week, and has so far held
13 meetings since this April. It issued a paper on May 29, entitled"
Main Issues in the Review of Land Taxation" which clarifies main Issues
to be considered in the course of the review of land taxation.
Subsequently on June 22, the Sub-Commission issued a paper entitled,
"For the Review of Land Taxation", which sorts out opinions expressed
by the commission members concerning land taxation.
In these papers, the Sub-Commission presented the following two
points as points of reference for the review of land taxation: first,
it is important to pursue appropriate tax burden on an asset of land,
from viewpoints of equity and neutral ity of taxation, and this
consequently contributes to efficient uti I ization of land; second, land
taxation, as a part of land policy, can play an important role in
promotion of efficient uti I ization of land, preventing speculative land
transactions.
The paper issued by the Sub-Commission on June 22 contains various
opinions concerning appropriate tax burden on transfer, holding and
acquisition of land, including issues related to (2), (3), and 7(1), (2)
below, which indicate, inter al ia, that the Government of Japan wi II
conduct a review with a view to addressing the deferment system of
payment of the inheritance tax and the fixed assets tax, as well as
consider the possible strengthening of the special land holding tax on
idle land.

-

11-3 -

The Government of Japan highly appreciates that the Sub-Commission
has sa:lsfactorily progressed the discussion and expects that the
discussion

WI

I I lead to land tax reform which contributes to such land

policies as efficient uti ization of land.

Taking account of the Issues provided in the above mentioned papers,
the Sub-Commission wi II continue to discuss possible changes in the
land taxation system and issue a report by early November.
T~e Government of Japan wi II make out a draft of a revised land

taxation system, with giving serious consideration to the report, and
submit the necessary legislation to the Diet by the end of FY

With respect to the taxation system on agricultural

(2)

1990.

land within

urbanization promotion areas of the major metropol itan areas, the
Government of Japan. together with necessary adjustm~nts and
improvements in the related pol iciest wi I I conduct a review with a view
to addressing the deferment system of payment of the inheritance tax
and the fixed assets tax,

in accordance with the Comprehensive Land

Po I icy PI an, so that the resu I ts will be smooth I y imp I emen ted from FY
1992.

(3)

In addition to the establishment of the new system for idle land

ment i oned in 1. (2). a rev i ew will be made with regard to the poss i b t e
strengthening of the special land holding tax on idle land.

3.

The Government of Japan is now exam I n I ng. toward the end of FY

1990,the uti I ization of State-owned land in the major metropol itan
areas and,

in accordance with its findings, wi II try to enable the

land to be uti I ized for. through sales and other arrangements,
appropriate private projects of urban district development. urban
faci I ities, urban redevelopment and publ ic housing projects. except
those cases where preservation of land for publ ic use is necessary.
The Government of Japan is urging local governments to take
similar measures with regard to local government-owned land.

-

11-.1 -

The Government of Japan wi I I complete the identification of
idle and underuti I ized State-owned land by the end of FY 1990. The
Government of Japan wi I I set a goal of converting idle and
underuti I ized State-owned land to productive use by the end of FY
1991, and wi I I carry out the conversion according to the goal.
Effective uti I ization of the extensive land owned by the
Japanese National Rai Iways Settlement Corporation in metropol itan
areas wi I I also be ensured.
4.
In order to Increase the supply of housing and residential land,
installation of the required infrastructure wi II be steadi Iy
pursued. In this context, based on the target indicated In the
"Sav i ng and Investment Patterns" chapter, the Government of Japan
is engaged in the formulation of a larger five-y~ar plan for
housing construction, improvement of sewerage and urban parks, etc.
Following the report submitted by the Administrative Reform
Counc iii n Octobe r 1987 etc., two c i rcu Iar not ices we re issued to
give guidance concerning the uti I ization of the eminent domain
system. As a result, the number of eminent domain operations
authorized in FY 1989 increased largely by more than 20% from the
p rev Ious year. The Gove rnment of Japan will encou rage the mo re
vigorous use of eminent domain.
The Government of Japan wi I I encourage more effective use of
subterranean property, and studies wi I I also be conducted on the
system concerning publ ic use of the deep underground from various
aspects including legislation in order to encourage its uti I ization.
5.
In order to meet the changed circumstances and to improve the
legal relationship between lessors and lessees, and taking into
account the desirabi lity of greater avai labi I ity of housing, a
review of the Land Lease Law and the House Lease Law is being
conducted, and an outl ine of the draft amendment of these laws may
be ready by as early as the end of FY 1990. The Government of
Japan wi I I then submit the necessary legislation to the Diet
- 11-5 -

without delay.

These measures are expected to induce a more

an increase in the supp I y of good
appropriate use of land and
Qua:

5.

I'" Y

houses fo r I ease.

In order to encourage effective uti I ization of land and to

facilitate the planned conversion of agricultural
reslcential

land to

land within urbanization promotion areas.

the

Government of Japan wi II promote timely and appropriate review of
diVISions between Urbanization Promotion Areas and Urbanization
Control Areas. and change of zoning designations.

Particularly In

major metropol itan areas. review of divisions between the two Areas
wi II be promoted to provide for the growing housing demands.

The Government of Japan has enacted in this June the
amendments of the "City Planning Law" and the "Sui ~ding Standards
Law" to establ ish the "District Plan to Promote Intensive Use of
Residential Land" which

wi 1/ help ensure the relaxation of limits

on bui Iding heights. total floor area ratio. etc.

for Qual ity

projects contributing to the increase of housing supply and the
formation of a better urban environment.

Specific deregulation

measures wi II be operated under this system by the end of 1990 with
other existing systems.

7.

In order to rationalize the official assessment of land value.

the Government of Japan wi I I :

(1)

rat ional ize the land value assessment for inheritance tax

calculation expeditiously. taking into account the nature of the
tax with a view to making the assessment closer to the market value;
and

(2)

give guidance to local governments to rationalize their land

value assessment for fixed assets tax calculation at the time of
the reassessment of the land valued in FY 1991; and advise them to
make Dubl ic the land values of the standard points.

-

11-6

-

III

Distribution System
I.

Bas i c Recogn it ion

Concerning the distribution system in Japan, the Government of
Japan attaches great importance to the enrichment of consumer I ife in
Japan through further improving efficiency, ensuring market access, and
building physical infrastructure. Rased upon such recognition, the
Government of Japan wi I I promote the implementation of a broad spectrum
of measures:
1.
The distribution of import freight wil I be accelerated and its
cost wi I I be reduced by the improvement of airports, harbors, and other
import infrastructure.
2.
Customs clearance procedures and other import procedures wil I be
further expedited to correspond to the increasing trade volume, whi Ie
maintaining such functions as real izing a proper and fair sharing of
the tax burden, and ensuring the health and safety of the people.
3.
Deregulation of the distribution system wil I be further promoted
with regard to a variety of laws and regulations, such as the Large
-Scale Retai~ Store Law, with a view to enriching consumer I ife in Japan.
4.
As to trade practices concerning distribution, an improved
environment wil I be sought from the standpoint of promoting competition
and securing market openness.
5.
Wide-ranging measures with lasting, structural impact wi I I be
implemented in order to expand imports, thereby improving the
efficiency of Japan's market structure including the distribution system.

I I.

Measures to be Taken

1.

Improvement of Import-related Infrastructure

(1)

Ai rport Improvement
(a) Based on the Fifth Five-Year Plan for Airport Improvement (FY
1986-90), the improvement of the New Tokyo International Airport,
the off-shore expansion of the Tokyo International Airport and
the improvement of the Kansai International Airport are being
vigorously promoted as the three most important projects. In
particular, completion of the second phase construction of the
New Tokyo International Airport and the first phase construction
of the Kansa i Inte rnat iona I Ai rpo rt will doub Ie the cargo
handling capacity as the cargo handling area will expand from
about 20 hectares at the New Tokyo International Airport alone
to about 50 hectares at the two airports combined. This
expansion of capacity, together with the improvement and the
expansion of the regional airport and airport-related cargo
handl ing faci I ities, is a significant step toward the goal of
ensuring airport capacity sufficient to meet ·the demand for
international air services for some time to come. The airport
-related cargo handling faci I ities at the New Tokyo
International Airport and at the Baraki Terminal are being
improved and expanded responding to the increasing demand for
international air cargo handl ing. Considerable efforts are also
being invested in the improvement of local airport faci I ities:
For instance, the construction of the New Hiroshima Airport IS
now vigorously under way with December, 1993 as the target
inauguration date.
(b)

(i) The Sixth Five Year Plan for Airport Improvement, to be
initiated in FY 1991, wi II include Yen targets and specify
airport and airport faci I ity projects to substantially
increase airport capacity sufficient to meet mediurn-to-Iong
term growth of the demand in international air
transportation. (The detai Is of the Sixth Five Year Plan
wi I I be formulated in autumn In 1991.)
(i i) The Aviation Counci I is now discussing as one of the
main agenda for the Sixth Plan various improvements of
-

111- 2 -

airport faci I ities, including the overall concept of the
Kansai International Airport and increased use for
international service of regional airports.
(c) Improvement of roads related to import is being promoted In
I ine with the Tenth Five-Year Plan for Road Improvement
(FY 1988-92).
(2)

Harbor Improvement

Harbors are being improved in I ine with the Seventh Five-Year Plan
for Harbor Imprc;ement (FY 1986-90). In recent years, imports of
manufactured goods have been rising rapidly, and therefore, in order
to be able to respond to these increasing imports, the improvement of
container terminals for overseas trade and large scale multi-purpose
terminals for overseas trade wi II be given high priority in the
context of the Eighth Five-Year Plan now being prepared to be
initiated in FY 1991. Concerning warehouse faci I ities, the
Government of Japan is promoting private investment in faci I ities
through such means as low-interest loans by the Japan Development
Bank (JOB) and favorable tax measures. Since FY 1989, special
emphasis is being placed on promoting the improvement of warehouse
faci I ities deal ing primari Iy with imported goods through a special low
-interest loan faci I ity. Thanks to these measures, warehouse
companies in the Tokyo and Osaka metropol itan areas plan to expand
their faci I ities by 16% by the end of FY 1991.
2.

Expeditious and Proper Import Procedures

In order to ensure rapid entry of normal cargo imports into the
Japanese distribution system, the Government of Japan goal is 24 hours
clearance (from presentation of import declaration to import permit)
through entry procedures for imports by 1991. The Government of Japan
wi I I ensure adequate budget resources and make regulatory changes
necessary to accompl ish this goal.

-

111- 3 -

(1)

Customs Clearance Procedures

Automated Processing System wi I I be introduced for customs
c! earance of sea cargoes from 1991 to 1992. I n add it ion, the
Japanese Customs wi I I further improve and rational ize the customs
c Iea rance procedu res, in acco rdance with the repo rt by the Japan-U. S.
Customs Experts Group. This wi II include efforts for achieving,
within a few years, the implementation of upgrading of NACCS (Nippon
Air Cargo Clearance System), expansion of the scope of the
Provisional Examination System and its procedural simpl ification, and
introduction of the Automated Risk Judgement System supported by the
Customs Data Base.
(2)

Import Procedures other than Customs Clearance Procedures

In accordance with the report submitted by the Japan-U.S. Experts
Group on Import Procedures, which was established with a view to
achieving more expeditious and proper import procedures and consists
of agencies concerned, the Government of Japan wi I I, after study as
necessary, start any of the fol lowing measures as soon as it becomes
feasible and make efforts to implement them within three years.
(a) Establ ishment of an integrated import processing system under
the cooperation between Customs and other agencies with
jurisdiction over import procedures through measures such as
setting up of Liaison Committee consisting of agencies with
j uri sd ict i on ave r i mpo rt procedu res, s i mu Itaneous process i n9 of
customs clearance and procedures required by other import
-related laws. and faci I itation of information transmission
among agencies with jurisdiction over import procedures.
(b) Promotion of pre-arrival processing by introduction of pre
-fi I ing system, improvement and expansion of pre-export
exam i nat i on system, inc Iud i ng p romot i on of acceptance of
overseas examination data, enlargement of blanket handl ing system,
etc.

-

111- 4 -

(c) Physical improvement and expansion of cargo processing system,
including expansion of working hours.
3.

Deregulatioh

(1)

Large-Scale Retai I Store Law

As dynamic changes are cal led for in the distribution industry,
deregulation measures wi I I be taken in order to meet new needs of
consumers, to enhance the vital ity of the distribution industry and
to ensure smooth procedures for opening new stores. Deregulation
measures wi I I be put into place by both the central Government and
Ioca I pub lie autho r i ties.
The fol lowing deregulation measures wil I be implemented by the
Government of Japan.
(a) Deregulation measures that wi I I be immediately taken (such
measures as those for an appropriate implementation of the law)
(i) In order to ensure smooth coordination procedures and to
faci I itate the opening of new stores and expansion of
existing stores, the following deregulation measures for an
appropriate implementation of the law came in effect on May
30, 1990, subsequent to the de Ii berat ion by the Jo i nt
Conference of the Industrial Structural Counci I and the
Smal I and Medium Enterprise Pol icy Counci I on Apri I 27,
this year. These are the maximum measures which are
legally possible under the current Large-Scale Retai I Store
Law (LSRSL).
(aa) Shortening of coordination processing period for
opening stores:
The coordination processing period wi I I be less than
one and a half years. The day the items required by
the publ ic ordinance (tsutatsu) are presented on the
-

I" - 5 -

plan to open the store with the relevant regional
Bureau of the Ministry of International Trade and
Industry (MITI) is regarded as the announcement day of
the store opening. All the applications will be
rece i ved.
ebb) Exceptional measures concerning floor space for
import sales:
Regarding floor space for import sales. coordination
procedu res wi I I be exempted fo r an inc rease up to a
specific scale (100~ or less of the floor space).
ecc) Exemption of coordination procedures for the
increase of a certain increase in floor space:
Coordination procedures wi II be exempted for certain
cases such as a floor space increase up to a specific
scale (whichever is the smaller, 10% of the existing
floor space or 50m 2 ).
(dd) Relaxation of the scope of regulation on closing
time and the numbe r of bus i ness ho I i days:
Closing time under regulation wi II be relaxed from
"after six o'clock p. m." to "after seven o'clock p. m."
The number of business hoi idays under regulation wi II
be relaxed from "less than four days a month" to "Iess
than 44 days a year".
(ee) Enhancement of transparency In the coordination
procedures:
Transparency of the coordination procedures wi II be
improved through such measures as further disclosure
of the outcome of the del iberation in the Counci I for

-

111-6

-

Coordinating Commercial Activities, quarterly
publ ication of the status of coordination activities
and establ ishment of the office for receipt and
processi~g of the inquiries by the interested parties
including those wishing to open stores.
It is confirmed that, as has been the case in the
past, the ongoing coordination procedures wi I I not
prevent other procedures required by other laws and
regulations (such as Bui Iding Standards Law and City
Planning Law) from being pursued in parallel nor wi II
they prevent those wishing to open stores from
advertising for potential tenants. It is also
confirmed that In case of acquisition of existing
reta i lout lets th rough co rpo rate aCQu i sit ion
(including those by foreign firm~), the coordination
procedures are not required.
(i i) Regarding separate regulation by local publ ic authorities,
the central Government, together with the above measures,
is mak i ng its utmost efforts by, for examp Ie, not i fy i ng
each prefectural Governor to take necessary corrective
measures as local publ ic authorities in the I ight of
objectives of the law.
(i i i) In order to ensure an appropriate implementation of the

law and of separate regulation by local publ ic authorities,
the Government of Japan wi I I take necessary fol low-up steps
including the checking of the status of implementation of
the above measures. For this purpose, Headquarters for the
Promotion of Smooth Coordination of Store Opening and
Headquarters for Regional Promotion were establ ished in the
Ministry of International Trade and Industry (MITI) and In
its regional Bureaus and Department from May 21 to 30, this
year, with the first meeting of the Headquarters for the
Promotion of Smooth Coordination of Store Opening taking
p Iace on June I, in an effort to fo II ow up the steady
-

111-7 -

implementation of the abcve measures.

(IV) In order to ensure an appropriate implementation of the
above measures thus to expedite the processing of the
coordination procedures,

the fiscal 1990 budget establ ishes

a new division cal led the Distribution Industries Division
in I~ITI (as of July

I, 1990) and increases by ten the

number of officials concerned (as of October

1.

1990).

Further efforts wi II be made to expand and strengthen the
Institutional set-up.

(v)

In order to accelerate changes in the distribution

industry and to expand manufactured imports,
the above measu res,

together with

steps wi I I be taken to he I p promote

imports by the distribution industry including smal I 3nd
medium distributors.
the fiscal

To achieve this objective,

the budget,

loans and investment plan, and the tax reform of

FY 1990 have establ ished tax incentive measures to promote
manufactured imports,

grass-root import expansion

activities of small and medium distributors,
comp rehens i ve d i st r i but ion cente rs,

international

expans i on of i mpo rt

promot ion fai rs by local retai lers, and others.

Further

efforts wi II be exerted to expand and reinforce such
measures.

(b)

Amendment of the law which is to be submitted to the Japanese

Diet during the next regular session

The Government of Japan wi II immediately start preparation
for the amendment of the law aiming at submitting the bi II
during the next regular session of the Japanese Diet,

by

initiating the del iberation of the relevant counci I.

(i)

Standpoint of the amendment

(aa) Sufficient consideration upon consumer interest.

-

111-8

-

(bb) Ensuring expedited processing of the coordination
procedures.
(cc) Ensuring the enhanced c.larity and transparency of
the procedu res.
(dd) Consideration upon international request to Japan
to increase imports.
(ii) Items considered as the elements of the amendment
(aa) Introduction of exceptional measures of
coordination procedures concerning the floor space for
import sales aiming at more import expansion.
(bb) Shortening of coordination processing period for
opening stores. (The objective of efforts is to
shorten the period to approximately one year.)
(cc) Enhancing clarity and transparency of coordination
procedures for opening stores.
(dd) Restraining local public authorities' separate
regu Iat ions.
(ee) Others
(c) Review after the above-mentioned amendment of the LSRSL
The LSRSL shal I be reviewed further two years after the above
-ment i oned amendment of the LSRSL. Th i s study will inc Iude an
analysis of the law's impact on consumers and competition in the
retai I sector and, based thereon, the need for a basic review of
the law and further action. In order to make the first point
clear. the above-mentioned amendment shall include a provision
stating that the effectiveness of the implementation of the
amendment wi I I be examined and that, based on this result,
-

111- 9 -

examination will be made on matters including removal of
regulations applied to specific geographical areas.

(2)

Regulation concerning premium offers and advertisement
The regulation of premium offers by the Act Against Unjustifiable

Premiums and Misleading Representation.
Co~petl:lon Codes.

including that by Fair

is designed to ensure fair competition in the

market place and to protect consumer interests.

Obviously. this

system is not Intended to be an impediment to new entry by foreign or
domestic firms, and the Fair Trade Commission (FTC) has enforced and
will continue to enforce this system so that it does not impede such
new entry.
The FTC, however,

IS currently reviewing all existing Fair

Competition Codes on premium offers so that they wi"1 I not work as
impediments to new entry by foreign or domestic firms, and wi II give
priority to completing this reView, and any relaxation as necessary,
as early as possible with respect to Codes relevant to foreign trade
or investment. As part of such an undertaking, the regulation by the
Fair Competition Code on Premium Offers in Chocolate Industries wi I I
be relaxed for the second time in July this year.

The regulation of

eight Codes wi II also be relaxed as early as possible this year and,
among them, newspaper advertisements with coupons are scheduled to be
allowed by this summer.

In reviewing the Codes, the FTC wi II hear the opinions of foreign
firms and foreign businessmen.

Guidance on Fai r Trade Conferences by the

FTC wi I I be tightened

lest they should take any action beyond their proper objectives.

(3)

Regulation concerning I iquor sales and other businesses
(a)

The Guidel ines for Liquor Sales Licencing were amended,

and their implementation has been improved since last
September by such measures as the easing of the licensing

- 111-1 0 -

criteria for large retai I shops and the .simpl ification and
clarification of those for average-sized I iQuor shops.
Under these measures, I iQuor sales I icenses were planned to
be issued to al I the large retai I shops (with a floor space
of more than 10,OOOm 2 ) and to about
5,000 average-sized shops by 1994. In accordance with the
Inter i m Report of the S II, the Government of Japan has
decided on front-loading I icensing to large retai I shops,
which are expected to sel I more imported I iquors.
The
issuance of I icenses to al I of those shops wi I I be completed
by the fal I of 1993.
(b) On trucking business, a law was approved by the Diet at
the end of last year and the Government of Japan has decided
to promote deregulation. The revised law altered the method
of entry regulation from the licensing system to a permit
system whi Ie abol ishing the supply-demand adjustment
regulation, and changes the permit system for fare
regulations to a notification system. (The revised law IS
due to take effect on December 1 this year.)
(c) With regard to the Pharmaceutical Affairs Law regulation
concerning general sales of pharmaceuticals, the Government
of Japan took deregulation measures which include the
reduction of items sellers should be equipped with for the
tests of drugs to about one third of the previous number.
(d) In NTT, discounts for bulk contractors of the "free dial"
(tol I-free cal Is) have been introduced this June. Reduced
postal rates have been made avai lable for direct
mai Is and catalogues sent out in large numbers for business
purposes. These have become possible by the introduction
of the advertising mai I service in October 1987 and the
catalogue parcel service in September 1989.
4.

Improvement of trade practices
- 111-1 1 -

(1) The FTC ~eceived a recommendation on June 21 from the
"Advisory Group on Distribution Systems, Business Practices and
Competition Pol icy," consisting of scholars and business experts.
The maIn contents of the recommendation are as fol lows.

CD The FTC should formulate guidel ines concerning the
Antimonopoly Act enforcement with regard to marketing policy
by manufacturers towards distributors and by distributors
towards manufacturers in the field of consumer goods'
distribution, taking fully into account merits and demerits
of concerned business conduct from the viewpoint of
compet it i on po I icy.
In formulating the guidel ines, the fol lowing points should
be taken into consideration.
a. To alleviate excesSive interference into business
activities of trading partners, and to promote more active
and independent business conduct.
b.

Especially to promote prIce competition among companies.

c. To enhance openness of markets in order that new
entrants, whether domestic or foreign companies, can more
freely enter the market or perform more active business
activities.
The guidel ines may include the fol lowing types of conduct
and other issues.
a.

Resale price maintenance.

b. Suggested retai I or wholesale prices by manufacturers
which come under resale price maintenance.
c.

Non price vertical restraints (restraints on deal ing
- 111-1 2 -

with compet ito rs' products 0 r i mpo rted goods, te r r i to ria I
or customer restriction, and restraints on sales methods),
interference into d i str i butors' bus i ness, rebates or
a II owances, return of unso Id goods, dispatch i ng
salespersons to shops, systematizations regarding
purchasing of commodities by large scale retai lers,
coercion into purchase, and coercive collection of
cont r i but ion, wh i ch fa II into unfa i r trade p ract ices.
d. Group boycott formed among competitors or among trading
partners which falls into private monopol ization or
unreasonable restraints of trade when they substantially
restrain competition in certain fields of trade or else
which fall into unfair trade practices.
e. Appl ication of the Antimonopoly Act regarding unfair
trade practices to deal ings between parent and subsidiary
compan I es.
~

Although sole import agent agreements are an important
instrument for new entry of imported goods, it may sometimes
cause anti-competitive effects upon domestic distribution.
Therefore, the FTC has to review its current guidel ines by
clarifying its interpretations with regard to manufacturers'
import, sales at high price in domestic markets, and undue
inhibition of parallel imports, in order to effectively
tackle these anti-competitive effects.
Furthermore in case foreign companies or sole import
agents are engaged in anti-competitive conduct, the FTC has
to apply the Antimonopoly Act strictly.

~

Individual companies, especially big companies, should
desirably enhance their legal affairs division and make
compl iance programs, etc. in order to prevent violations of
the Antimonopoly Act.
The FTC, based on these recommendations, wi I I formulate
- "I -1 3 -

and publ ish guidel ines by the end of FY 1990 which wi II
clarify. as concretely and clearly as possible, the criteria
regardi~g the enforcement of the Antimonopoly Act so that
fair competition with regard to trade practices in the
distribution sector wi II not be hindered. In formulating
such guidel ines, drafts wil I be made avai lable in advance to
the agenc ies concerned at home and abroad, so that they may
provide comments to the FTC before the guidel ines are
final ized. The FTC wi II strictly enforce the Antimonopoly
Act according to these guidel ines.
The FTC has enhanced its investigation system so that it
can intensify information gathering on i I legal activities
under the Antimonopoly Act and strictly el iminate such
act i vi ties. The FTC wi I I cont i nue its endeavo r to enhance
steadi Iy its investigation system.
(2) The Ministry of International Trade and Industry (MITI). after
hearing the opinions of foreign business organizations in Japan
and having received a recommendation from the Counci I on June 20,
formulated and presented to the industries concerned on June 25,
a guidel ine for improving trade practices aiming at simpl ification,
clarification and increased transparency of trade practices. The
MIT I is encouraging the industry concerned to take positive steps
to improve trade practices. Contact points for processing
complaints from foreign businesses wi II be establ ished in MITI
and the industries concerned.
5.

Import Promotion
Japanese Government has introduced a new package of
comprehensive import expansion measures in order for Japan to
become a world leading importing nation. It includes:

(1)

(a) creation of tax incentives to promote manufactured goods
imports;
- 111-1 4 -

(b) considerable increase In budget al location for import
expansion measures such as the establ ishment of an
information network for promotion of imports and the
dispatch of experts to western countries and other forms of
human exchanges in search of products to be exported to Japan;
(c) strengthening and expansion of the low-interest loan
faci I ities for i~10rt promotion;
(d) el imination of tariffs on more than 1,000 products
Having received Pari iamentary approval in the Diet, these
measures are now being implemented. In addition, agreement has
been reached between the MITI and the U.S. Commerce Department
for trade expansion. Efforts are thus being made to make the
measures more effective in cooperation with those of the exp~(t
countries.
(2) The Gove rnment of Japan wi I I estab I ish, in the Trade
Conference (an interagency committee chaired by the Prime
Minister), the Import Board (tentative name) consisting of both
Japanese government officials and private businesspersons
including foreign businesspersons. The board wi I I summarise
general reQuests and opinions of the board members that relate to
import expansion and faci I itation and wi I I report them to the
Trade Conference.
(3) Regarding concrete complaints by foreign firms concerning
market openness and import smoothness, including import procedures.
the Office of Trade and Investment Ombudsman (OTO) wi I I continue
to receive them at al I times and promptly process those claims.
With such meeting having taken place on May 29 this year, OTO
wi I I continue to hold meetings of the members of the OTO Advisory
Counci I as wei I as the members of the Special Grievances
Resolution Meeting with the members of the foreign Chambers of
Commerce in Japan, including the members of the American Chamber
of Commerce in Japan (ACCJ) at the latter's reQuest, which wi I I
- III -1 5 -

continue to provide opportunities for the latter to express their
opinions on the improvement of access to the Japanese market
Including issues relating to the standards and certification
system. Appropriate government agencies concerned wi II study
these opinions with a view to improving the openness of the
Japanese market and wi I I report back the resu I ts of the i r
consideration. Moreover OTO will improve its management, such as
participation of foreigners in the OTO Advisory Counci I Meeting,
as special members.
The Government of Japan wi I I initiate a new revIew In the area
of standarcs, certification and testing, where it wi II review
existing regulations and practices with regard to standards,
certification and testing, including matters connected with
industry association standards, to ensure that processes are
transparent and that standards and testing are performance based
whe re app rap r i ate. As a first step, th i s new rev i ew wi I I take up
standards, certification and testing which are raised by ACCJ,
other foreign chambers of commerce and other interested parties
through the OTO and other appropriate channels.

- 111-1 6 -

Exclusionary Business Practices

I.

Basic Recognition

Maintenance and promotion of fair and free competition IS an
extremely important policy objective, which not only serves the
interest of the consumers but also increases new market entry
opportunities including those of foreign companies. Based upon such
recognition, the Government of Japan wi II implement wide-ranging
measu res.
1.

Enhancement of the Antimonopoly Act and its enforcement.

2.

Greater transparency and fairness In administrative guidance
and other government practices.

3.

Encouragement of transparent and non-discriminatory
procurement procedures by private companies.

4.

Faci I itation of patent examination disposals including a
shorter examination period.

I I.

Measu res to be Taken

1.

Enhancement of the Antimonopoly Act and its Enforcement

The Government of Japan or the Fair Trade Commission (FTC) wi I I
take the fol lowing actions, including legislative action, which are
necessary or appropriate In achieving the goals set forth in the Report
regarding enhancement of the Antimonopoly Act and its enforcement.

(1)

Resorting

~ore

to Formal Actions

The Fair Trade Commission (FTC) will strictly exclude,
through resorting more to formal actions, activities violating the
Antlr.1onopoly Act. by expanding and enhancing the investigatory
funct:on of the FTC and increasing its proof-collecting capacity
agalns: illegal activities. Especially, the FTC wi II rigorously
deal with such conduct as price cartels, supply restraint cartels.
market a! locations, bidrigging, and group boycotts, and wi II take
forma! actions against them when they are found violating the
Antlr.1onopoly Act.
In addition. a system for consultations and complaints from
foreign businessmen and foreign firms was establ ished in the FTC
on June 8 and a special official (Officer in charge of
Consultation from Foreign Firms) was appointed, in order to make
it easier for foreign businessmen and foreign flrms to have
consultations or make complaints concerning the Antimonopoly Act,
to report cases of violation of the Act, and in order for the FTC
to address such cases as violations of the Antimonopoly Act
promptly and adequately.
(2)

Ensuring Greater Transparency

In order to ensure transparency. to enhance the deterrent
effect and to prevent simi lar illegal activities from occurring,
the contents, inc Iud i ng the names of the offende rs, the nature of
the offense and ci rcumstances surrounding it, of all formal
actions such as recommendations and surcharge payment orders wi I I
be made publ ic. Warnings wi II also be made publ ic other than in
exceptional cases.

-

IV-2 -

(3)

Increase In Budgetary AI location

In June this year, the Government of Japan increased the
number of personnel in the FTC investigation department and
created new divisions:
(a)

AI location of 25 new officials (129
20% increment In staff,

(b)

Establ ishment of one new office for strengthening violation
detection (1 -? 2 offices),

(c)

Establ ishment of two new divisions for enhancing
investigative functions (6 -? 8 offices),

(d)

Establ ishment of one new division in the Osaka Local Office
for enhancing investigative functions of local offices (1 -?
2 offices).

-?

154), resulting In a

The Government of Japan wi I I continue with its efforts to
steadi Iy Improve and strengthen the FTC.
(4)

Surcharges

In order to enhance enforcement against violations. the
Government of Japan plans to submit a bi I I to revise the
Antimonopoly Act to the Diet during the next regular seSSion, to
raise the surcharges against cartels so that they effectively
deter violations of the Antimonopoly Act. A consultative group
consisting of scholars and other experts has been set up under the
auspices of the Chief Cabinet Secretary, to consider the concrete
contents regarding the raising of surcharges. Moreover, group
boycotts wi I I also be regulated as cartels if they substantially
restrain competition, and wi I I be subject to surcharges if they
influence prices.

-

N-3 -

(5)

Resorting to Criminal Penalties

More criminal penalties wi I I be uti I ized in the future, by
the FTC's accusat ion of i I I ega I act i vi ties vi 0 I at i ng the
Antimonopoly Act to seek criminal penalties for them.
Relevant governmental agencies (the Ministry of Justice,
prosecuting authority and the FTC) have initiated coordination In
enhancing systems to cope adequately with any case violating the
Antimonopoly Act. As a specific measure, a liaison-coordination
was set up In Apri I between the Ministry of Justice and the FTC,
to examine matters such as accusation procedures. The group is
working with a view to reaching a conclusion by the end of this
year. There is also a plan to establ ish a point of contact
between the prosecuting authority and the FTC for exchange of
opinions and information on concrete problems of each case being
considered to be accused.
The FTC wi I I, from now on, actively accuse to seek criminal
penalties on the following cases, and this pol icy was made publ ic
on June 20:
(a)

Vicious and serious cases which are considered to have wide
spread influence on people's livings, out of those violations
which sUbstantially restrain competition in certain areas of
trade such as p rice carte I s, supp I y rest ra in t carte I s, market
al locations, bidrigging, group boycotts and other violations.

(b)

Among violation cases involving those businessmen or
industries who are repeat offenders or those who do not abide
by the el imination measures, those cases for which the
administrative measures of the FTC are not considered to
fulfi I I the purpose of the law.

On June 20, 1990, the Min i ster of Just ice, In a pub Ii c lyre I eased
statement, called on all the chief prosecutors, on the occasion of the
An1ual Meeting of Chief Prosecutors, to provide to the FTC any relevant
-

IV-4 -

information on Antimonopoly Act violations they have obtained during
the cou rse of invest i gat'i on 0 r othe rw i se. In add i t ion, he directed a I I
the chief prosecutors to make special efforts to vigorously pursue
cases where the FTC has accused a criminal violation of the
Antimononopoly Act.
(6)

The Damage Remedy System

A study on the effective use of the current damage remedy system
provided in the Section 25 of the Antimonopoly Act is currently
un de rtaken by a study group set up in the FTC, in 0 rde r that an y
individual party suffering damage from violation of the
Antimonopoly Act can resort effectively to damage remedy suits.
The study group has publ icized the results of its del iberations
on June 25. The FTC will imp Iement the recommendat ions of the
study group, effective immediately, and wi I I take necessary
measures, including the fol lowing, so that the current damage
remedy system wi I I be able to be effectively uti I ized:
(a)

In order to deter violations of the Antimonopoly Act through
proper and swift recovery of damages caused by such violations,
the FTC intends to playa more active role in damage remedy
suits under Section 25 of the Antimonopoly Act.

(b)

In order to alleviate plaintiffs' (injured parties') burden
of proof concerning violation and damage, the FTC wi I I take
the fol lowing measures:

aa.

the FTC wi II describe its findings on the violation as
concretely and clearly as possible In its document of decision.

bb.

when the FTC subm i ts its op In Ion pursuant to Sect ion 84 of
the Ant i monopo Iy Act, it will descr i be as much as poss i b Ie
its judgment on the relevance or causal relations between
violations and damages, the amount of damages, and the
measure used for its calculation. The FTC wi I I also append
as far as possible, the materials and the data which are the
-

IV- 5 -

bases of its views.
ce.

the FTC wi I I, upon request of the court. subm i t to the court
materials and data necessary to prove the existence of
violations, or the amount or causation of damages.
Plaintiffs (injured parties) will be permitted, according to
the civi I procedures, to review such materials and data upon
receipt by the court.

dd.

the FTC wi I I retain originals or copIes of materials and data
obtained in the course of investigations resulting in formal
decisions of violation of the Antimonopoly Act that might be
relevant to proof of violation. or the amount or causation of
damages, In a private damage action based on such violation.

(c)

The FTC wi I I fully publ icize the damage suit system under the
Section 25 of the Antimonopoly Act.

(d)

The FTC wi II take necessary act ions, inc I ud i ng measures
s i mil ar to those listed in parag raph (b) above, to ensu re
that the p r ivate damage remedy can be ut iii zed effect i ve I y
when the FTC finds that a trade association has violated the
Antimonopoly Act.

Moreover, with regard to the question of fi I ing fees of private
damage remedy suits based upon the section 25 of the Antimonopoly Act,
the Ministry of Justice and the FTC wi I I continue to study the matter
as to whether or not there is room for improvement.
(7)

Effective Deterrence against Bidrigging
(a)

The Government of Japan wi II cont i nue to make efforts to
el iminate bidrigging on government-funded projects. In this
regard, procuring agencies wi II rigorously deal with any
bidrigging cases, and wi II vigorously apply against fi rms
found to have engaged in such bidrigging administrative
measu res, inc Iud i ng sus pens ion f rom des i gnat ion, that are
-

IV-6 -

effective In deterring bidrigging activities. Moreover, such
procuring agencies wi I I increase their vigi lance against
bidrigging activities on their procurements, and wi I I on
their own judgment report relevant information regarding such
activities to the FTC.
(b)

The FTC wi II enforce the Antimonopoly Act strictly against
bidrigging in all industries.

(c)

The National Coordinating Committee for Implementation of
Publ ic Works Contract Procedures (NCC) has revised its model
guidel ine on designation suspension, extending the period of
suspension and expanding the district of appl ication of
suspension in Antimonopoly Act violation cases. Through this
revision, in certain cases, the minimum period of designation
suspension has been doubled and it is to be appl ied on a
nationwide level.
Upon the above-mentioned reVISion, governmental agencies and
publ ic corporations have been taking steps to revise their
guidel ines on designation suspension, and most of them have
completed the revision of the guidel ines in an expeditious
manner since June this year.

(d)

2.

In reviewing the fines provided In the Criminal Code, the
Ministry of Justice is considering an increase in the maximum
fine under the Criminal Code 96-3 concerning bidrigging, and
wi I I endeavor to amend the Criminal Code to that effect at
the earl iest time possible.

Government Practices

(1) The Government of Japan has been making strenuous efforts to
promote deregulation. On the basis of the recommendations of the
Provisional Counci I for the Promotion of Administrative Reform, a
Cabinet decision on Deregulation Pol icy Proposals was adopted. Based
upon these Proposals, improvements in the system and its implementation

- 1V-7

U)

i I I be mace as soon as poss i b Ie. through such means as ex ped i t i ous

considerations In the relevant Counci Is.
(2)

Administrative Guidance
In order to ensure comprehensive and government wide transparency

a;c falr:'1ess of administrative guidance. the Government of Japan will
e~sure :ha: administrative guidance conforms with its intention that
ad~lnlstrative guidance does not restrict market access or undermine
fair competition. The Government of Japan will implement its
ad~:nls:rative guidance in writing as much as possible.
It wi I I make
the administrative guidance publ ic when it IS implemented. unless there
are st rang reasons not to do so, fo r examp Ie, when it is re Iated to
national security or when a publ ication of the administrative guidance
causes. 0 r may cause. such ha rm as might resu I t from d i vu I gence of
trade sec ret s.
(3)

Advisory Committees and Study Groups
The Government of Japan confirms the following principles:
(a)

The results of the del iberations of government-sponsored
"i ndust ry adv i so ry comm i ttees and study groups" sha I I be made
pub I i c.

(b)

Where the subject of discussion is related to consumer
interests. the committee or study group shall invite, as
members. those who can effectively represent consumer
interests.

(c)

Where the subject of discussion is relevant to the interests
of foreign companies. the committee or study group shal I make
efforts to hear the opinions of foreigners or representatives
of foreign companies who represent the balanced and general
interests of foreign companies.

Cd)

Study groups. in Japanese practice. consist of those who have
IV-8 -

outstanding knowledge or experience on the subject of
discussion and are able to make valuable contributions to the
discussions. Likewise, when study groups address matters
re Ievant to the i nte rests of fo re i gn compan i eSt qua I if i ed
foreigners wi I I be considered for participation in such study
groups.
(e)

The substance discussed in the committees and study groups
shal I not be anti-competitive.

(f)

The "visions" developed by the Government shal I not be used
to enhance the competitiveness of particular companies in the
Japanese market.

(g)

In the "visions" involving trade matters, the significance of
imports shal I be emphasized.

(4) With regard to the exemptions from the appl ication of the
Antimonopoly Act, they are exceptional dispositions exempting certain
special cases from the general rules of the Antimonopoly Act. The
exceptional treatment has therefore always been kept to a minimum.
The exemptions from the appl ication of the Antimonopoly Act should
be at a minimum, and the necessity of existing exemptions wi I I be
reconsidered with a view to promoting competition pol icy. The scope of
exemptions wi I I also be reviewed, even in cases where they wi I I be
maintained, beginning with the exemptions, if any, which impede import
trade or investment.
No recession cartel based upon the Antimonopoly Act is currently
I n effect.
The FTC will not a II ow recess i on carte Is to be used to
impede i mpo rt s.
3.

Procurement Practices of Private Firms

(1) The Government of Japan confirms its view that procurement by
private firms should be left to the decisions of the buyers and the
-

IV-9 -

eJ:for'ts of the suppliers under free competition at the market place,
and 'that
~ar

(2)

ke,~

a~y ac~ion in violation of the Antimonopoly Act hindering
••

CC~;Jel.ll.lon

must be reso I ute lye lim i nated.

The Government of Japan bel

ieves that. as a matter of course,

~ b y ~y,
I'va~~_
~
. fi rms should be non-discriminatory against

prcc~rerr;enl

'&oye;S:l

(3)

goods.

The Government of Japan.

therefore.

"G~lcel ines of Procurement Pol icies".

highly appreciates the

announced by the Japan Federation

of ~cor.cm:c Organizations (Keidanren) on April

24.

as a voluntary

effo rt of t he bus I ness secto r in Japan an d suppa rt s those gu i de lines.
In addit ion,

the Government of Japan wi II encourage,

int~rnatlonal

viewpoint.

from an

private firms to make their procurement

procedures transparent and non-discriminatory against foreign goods as
soon as possible.

and wi I I conduct statistical surveys of those

procedures annually for three years fol lowing the publ ication of this
repo rt.

4.

Effective Patent Examination

Regarding the patent system. consideration on the harmonization of
patent systems IS under way in multi lateral fora such as WIPO and GATT.
The Government of Japan,

together with the

actively participate In. and contribute to.

U.S.

Government.

wi I I

the discussions there.

The Government of Japan has vigorously promoted comprehensive
po I icy measu res to exped i te patent exam i nat ion d i sposa Is,
the continual

wh i ch inc I ude

increase in the prescribed number of officials of the

Patent Office (increase of patent examiners; by 30 persons each In FY
1989 and in FY 1990). commencement of the world's first electronic
filing of patent appl ications (special measures laws including the
revIsion of the Patent I~aw; approved by the Diet on June 7.
to sta:t the electronic fi I ing in December.

1990. and

1990). as well as the

contraC':lng with a specialized outside agency for prior art search

~ecessary for patent examination (10.000 cases in the budget of FY 1989

a~d 20,000 cases I n the bucget of FY 1990).

- IV -1 0 -

Through such comprehens'ive

measures, the situation of the patent examination delay has already
started to improve.
The Government of Japan wi I I use its best efforts to reduce the
average patent examination period of Japan to 24 months within five
years.
For the implementation of the above, the Government of Japan wi I I
make continuous and significant annual increases of the prescribed
number of patent examiners and other officials of the Patent Office
which are to be newly implemented under a special consideration in
addition to the on-going comprehensive measures.
Apart from the ordinary examination procedure, the accelerated
examination system, which terminates the examination in a short period,
has been introduced, and its active uti I ization is expected.

-IV-ll-

Keiretsu Relationships
I.

Basic Recognition

Certain aspects of economic rational ity of Keiretsu relationships
notwithstanding, there is a view that certain aspects of Keiretsu
relationships also promote preferential group trade, negatively affect
foreign direct investment in Japan, and may give rise to anti
-competitive business practices. In order to address this concern, the
Government of Japan intends to make Keiretsu more open and transparent
and to take necessary steps toward that end. The Government of Japan
wi I I take measures in its competition pol icy and enforce the
Antimonopoly Act strictly, so that business transactions among
companies with the background of Keiretsu relationship would not hinder
fair competition and thereby have an exclusionary effect on foreign
firms attempt i ng to export, market or invest in Japan.
The Government of Japan wi I I also implement a wide range of
pol icies to faci I itate the entry of foreign enterprises into the
Japanese market.
I I.

Measures to be Taken

1.

strengthening the Function of the Fair Trade Commission

(1) The Fair Trade Commission (FTC) wi I I strengthen its monitoring of
transact ions among Ke i retsll firms, inc Iud i ng but not lim i ted to, those
which have cross shareholding relationships, to determine whether these
transactions are being conducted in a way that impedes fair competition.
If such monitoring reveals that the effect of the cross shareholding
may be a substant ia I rest ra i nt on compet i t ion, the FTC wi I I rest r i ct
cross shareholding or order transfers of shares held in the cross
shareholding to remedy the illegal situation; if the monitoring reveals
that cross shareholding is used as a means of effecting an unfair trade
practice, the FTC wi II take appropriate measures, including restriction
on cross shareholding or transfers of shares held in the cross
shareholding, to remedy the i "egal situation. Further, if such
monitoring reveals that anti-competitive practices are occurring, the
FTC wi I I take appropriate measures to prevent and remedy the anti

-competitive practices.

The FTC will

Include In Its annual

report any

results and such actions as have been taken.

In this connection,

orr June 21 this year,

the "Advisory Group on

01 st r I but Ion Systems, Bus i ness Pract ices and Compet it i on Po Ii cy"
estab I i shed by the FTC, cons i st i ng of scho I ars and bus i ness expe rts,

Iss~ed recommendations with respect to the continuity and the
exclusiveness of the transactions among companies In the same Keiretsu
group whether or not cross shareholding is involved.

Main contents of

the recommmendat ions are as fol lows:

Although continuous trade relationships may have been formed due
to certain reasonable motives,
entry barriers,

impediments to competition,

should be removed.

For this purpose,

such as

regarding the

exclusiveness in transactions among companies where a continuous trade
relationship or a shareholding relationship exists,

the FTC should

establ ish guide! ines setting out the conduct which may be ; I legal under
the Antimonopoly Act. The guidelines should include following types of
conduct:

a.

Cartels regarding customer restrictions,

and market allocation

carte I s, among compet i tors.

b.

Group boycotts formed among competitors or among trading partners
which fall

into private monopol ization or unreasonable restraint of

trade when they substantially restrain competition,
fall

c.

or else which

into unfair trade practices.

Uni lateral refusals to deal, exclusive deal ing, coercing to deal or
mutually beneficial reciprocal deal ing, and other anti-competitive
conduct associated with continuous trade relationships,

which fall

Into unfair trade practices.

d. Wher: shareho 1 ding I s used as a means of ensur I ng the effect i veness
of conduct listed
e:c,

I

n a,

b, and c abo'Je,

0

r 'J.Ihen dea ling is refused

because of the absence of a shareho I ding re I at i onsh i p,

should clarify its Intercretation that such ccnd~ct could ~e

- V-2 -

the FTC

regulated from the viewpoint of unfair trade practices. Furthermore.
when it is envisaged that unfair trade practices can not be
el iminated effectively without ordering disposition of stocks, the
FTC can order such disposition.
~

Individual companies, especially big companies, should desirably
enhance their legal affairs division and make compl iance programs, etc.,
to prevent violations of the Antimonopoly Act and other exclusionary
practices. It is also desirable to improve transparency of presidents'
meetings within corporate groups through such means as providing the
publ ic with information on their activities.
On the basis of the recommendations, the FTC wi I I set up and
publ ish guidel ines by the end of FY 1990, which wi I I clarify, as
concretely and clearly as possible, the criteria regarding the
enforcement of the Antimonopoly Act with respect to the continuity and
the exclusiveness of business practices among companies in the same
Keiretsu group, with a view to ensuring that business practices among
companies in Keiretsu groups wi I I not hinder fair competition, and
thereby contributing to the promotion of fair and more open
transactions among them without any discrimination against foreign firms.
In formulating such guidel ines, drafts wi I I be made avai lable in
advance to the agencies concerned at home and abroad, so that they may
provide comments to the FTC before the guidel ines are final ized. The
FTC wi I I strictly enforce the Antimonopoly Act in accordance with the
gu i de lines.
(2) The FTC wi II conduct regularly, roughly every two years, close
ana Iys i s of var i ous aspects of Ke i retsu groups, inc Iud i ng supp lie r
-customer transactions, financing arrangements among group firms,
personal ties, and special emphasis on the role of general trading
compan ies in Ke i retsu groups. The resu Its of these ana lyses wi I I be
publ ished. The FTC wi II take steps, including stricter enforcement of
the Antimonopoly Act, to address anti-competitive and exclusionary
practices uncovered in the FTC analyses. Furthermore, the FTC wi I I
survey the transactions among companies in specific industries
regarding such issues as the effect of cross shareholding among

- V-3 -

companies which have trade relations.

(3)

The Chief Cabinet Secretary wi I I issue a statement which affirms

that the Government of Japan wi I I implement a wide-range of measures so
that Keiretsu relationships will not hinder fair competition and
transparent transactions and thereby the entry of foreign firms into
the Japanese market

WI

II be fac iii tated as we I' as ca II i ng upon

keiretsu firms "for their cooperation to that effect.

2.

Foreign Direct Investment

(1)

The Government of Japan will

issue a clear pol icy statement

affirming its strong commitment to an open foreign direct investment
POliCY, encompassing the principle of national treatment.

This

statement wi II be issued as soon as possible following release of the
SII Final Report.
(2)

The Government of Japan wi II submit. after due legal examination,

a bi II to amend the Foreign Exchange and Foreign Trade Control Law in
the next ordinary Diet session.
The current Foreign Exchange and Foreign Trade Control Law enables
the Government of Japan to restrict the foreign direct investment and
importation of technology into Japan in any industrial sector on the
grounds that the investment and the importation of technology might
adversely ar,d seriously affect similar do:nestic business activities or
the smooth performance of the Japanese economy.

The Government of Japan, recognizing that these provIsions are
neither appropriate nor fit to the present practices of the law and
that such broad restrictions are not needed on a general basis. wi II
abol ish these provisions of the law and reolace them with new
provisions to ensure that restrictions wi II only be appl ied to those
cases which concern national security or related interests as described
I:'

Article 3 of the Code (Code of Liberalization of Capital Movements

of

O~CD) and to cases in sectors as reserved ~nder the Code.

Reco311zIng the ob~ectives o~ ~he 8~CC Ccd~-, L~
,;le G
'overr;i:1en +~

-

V-4 -

0

f J apan

continues to revIew carefully its reservations within the framework of
the OECD Code.
In relaxing or abol ishing the provisions relating to the present
prior notification reQuirements for foreign direct investment and
importation of technology into Japan, the Government of Japan wi I I
positively examine the possibi I ity of replacing prior notification
reQuirements with ex post facto notification procedures for cases
clearly excluding those which concern national security or related
interests as described in Article 3 of the Code and those in sectors as
reserved under the Code.
(3) The low-interest loan faci I ity offered exclusively to foreign
companies and Japanese affi I iates of foreign companies by the Japan
Development Bank (JDB) and the Okinawa Development Finance Corporation
was drastically expanded in June. In addition, a corresponding
faci I ity was also establ ished in the Hokkaido-Tohoku Development
Finance Corporation in June. Furthermore, advisory offices for the
promotion of foreign direct investment in Japan are to be set up in the
overseas representative offices of theJDB in order to support foreign
companies investing in Japan in cooperation with Embassies, Consulates
-General and JETRO offices. Appropriate offices of JETRO or these
advisory offices in cooperation with Embassies and Consulates-General
provide information useful in arrranging beneficial ventures between
foreign firms and Japanese companies and arrange seminars and missions
for potential investors (JETRO offices only).
3.

Revision of the Take-Over Bid System

Regarding the Take-Over Bid (TaB) system, the Goverment of Japan
submitted to the Diet a bi I I cal I ing for abol ition of the prior
notification reQuirement for TaB's, prolongation of the take-over
period and so forth. The bi I I was approved on June 15.

- V-s -

4.

Enhancement of the Disclosure Requirements

(1)

In order to introduce the so-called 5 percent

the disclosure of substantial ownership in shares,

rule, which requires
the Government of

Together with the revision of the
TaB system, the b I II was approved on June 15. The new rule would also

Japan submitted to the Diet a bi II.

require continuing reporting as investors above the five percent
threshold acquire or dispose of blocks of shares in an amount equal to
one percent or more.

(2)

With respect to the disclosure requirements related to the

Ke I ret su p rob I em, the Gove rnment of Japan will enhance them as fo II ows:

CD

With respect to reporting of related-party transactions, the

Government of Japan wi II expand the scope of related-party disclosure
reQui rements to such as specified by the standard of, FAS8 statement No.
57 in the Un i ted States, so that they will inc I ude a company's
transactions with its affi I iated companies, major shareholders (holding
10 percent of the shares or more) and any other significant related
-parties,

in addition to transactions with its parent company and with

the dl rectors of the company concerned.

Such reporting wi II include the nature of the relationships,
description of the transactions, and their amounts.

~

UJ i th respect to the conso I i dated f i nanc i a I statement requ ired

by the Securities and Exchange Law, the Government of Japan wi II amend
the ru I e so that the conso I i dated f i nanc i a I statement wi I I be disc lased
in the primary annual statement instead of being provided as its
at tachmen t.

~

The Government of Japan has implemented the rule for segmented

financial reporting on a consol idated basis from the business year
beginning on or after Apri I 1, 1990, under which sales amounts and
operational profits and losses by I'ndustry
II
as we
as sales amounts In
home coun try and ab road wi I: :e disc losed.

-

V-6 -

The Government of Japan wi I I further improve disclosure
requirements on unconsol idated financial report as wei I to include
sales amounts to each major customer, defined as those accounting for
over 10 percent of tot a I revenue, in add i t i on to the current
requirements for disclosure including amounts receivable and amounts
payable by major parties.
@D

Regarding 0), ® and @ above, the Government of Japan will
implement the enhanced rules from the business year beginning on or
after Apri I I, 1991.
The Government of Japan expects that these enhanced disclosure
requirements wi I I promote transparancy of relations among firms.
5.

Reexam i nat ion of the Company Law

The Committee on Legislation wi II reexamine the Company Law with a
view to enhancing disclosure requirements and shareholders' rights, and
to simpl ifying mergers and acquisitions procedures.

-

V-7 -

VI

Pricing Mechanisms
I.

Bas ic Recogn i t ion

Based upon the recogn it i on that it is undes i rab Ie, in rea liz i ng a
high Qual ity of I ife, for large and unreasonable price differentials
between domestic and overseas markets to continue to exist for a long
time, the Government of Japan wi II implement the following pol icies to
adjust the differentials:

II.
1.

1.

Obtaining information on price differentials and providing
it to consumers and industries;

2.

Deregulation and strict enforcement of the Antimonopoly Act;

3.

Promotion of imports and improving productivity;

4.

Formation of more appropriate land prices;

5.

Setting of publ ic uti I ity prices at more appropriate levels.

Measures to be Taken
Implementation of Measures to Adjust Price Differentials between
Domestic and Overseas Markets

The Government and the Liberal Democratic Party (LOP) establ ished
on December 4 last year the Government-LOP Joint Headquarters for
Adjustment of Price Differentials between Domestic and Overseas Markets
to promote comprehensive pol icy measures for the adjustment of the
price differentials from a consumer-oriented standpoint. The
membership consists of the Prime Minister as Chairman, with the
Minister of State of Economic Planning Agency, the Minister of
International Trade and Industry, the Chief Cabinet Secretary and the
Chairman of Pol icy Affairs Research Counci I of the LOP as Vice Chairmen,
and other Cabinet Ministers and LDP leaders concerned. The
Headquarters decided on 52 items as concrete measures to be taken for

the adjustment of price differentials between domestic and overseas
markets In Its second meeting held on January 19 this year.
These concrete measures can be grouped into the following

Sl)(

p I I lars:
The government agencies concerned wi II endeavor to obtain

(1)

Information on price differentials through such means as surveys of
price differentials of goods and services between domestic and
overseas markets, and, where needed, to take necessary measures such
as providing the industries concerned with the information on price
differentials in order to adjust and narrow the gap.
The gave rnment agenc ies concerned wi I I endeavo r to imp rove the
competitive condition in the distribution system by such means as
deregulation and strict enforcement of the Antimonopoly Act.

(2)

(3) The government agencies concerned wi II endeavor to further promote
import and/or improve productivity of the relevant industries for the
purpose of contributing to the adjustment and narrowing of the price
differentials between domestic and overseas markets.
(4) Efforts will be made to set prices for public utilities at more
appropriate levels by further improving productivity of the
Industries concerned and by examining from an international
perspective their cost compositions and other elements of price
format Ion.
(5) Based upon the del iberations of the Ministerial Conference for
Land Pol iCles, efforts wi 11 be made to rational ize land prices,
especially in metropol itan areas, through close coordination among
the government agencies concerned.
(6) The government agencies concerned wi II promote other pol icy
measures which wi II contribute to the adjustment of price
differentials, such as further deregulation, strict enforcement of
the Antimonopoly Act and the dissemination of relevant information to
-

VI- 2

-

the consumers.
The government agencies concerned wi I I steadi Iy implement the 52
measures included in the above six pi I lars. In July 1990, the
Headquarters wi I I review the implementation of the 52 measures to date
and make pub I i c the resu Its of such fo I low-up at that time, inc Iud i ng,
where needed, a clearer schedule for further implementation. The
Government of Japan wi I I be prepared to explain implementation measures
in the SI I fol low-up process.
The government agencies concerned wi I I thereafter publ ish the
state of implementation each time any measure is implemented.
2.

Continuous Implementation of Domestic and Overseas Price Survey
and the Dissemination of Information to Consumers and Industries

(1) Pursuant to the decision of the Joint Government-LOP Headquarters,
the Ministries of International Trade and Industry, Health and Welfare,
Agriculture, Forestry and Fisheries, Finance and Transport, which
participated in the joint U.S.-Japan price survey conducted by MIT I and
the Department of Commerce, as wei I as the Japan Fair Trade Commission,
have also conducted independent surveys under their jurisdiction.
MITI held meetings with consumers and industrial representatives
In eight major cities to explain, as wei I as exchange views on the
problem of price differentials. MIT I also gave publ icity to the
problem through advertisements on newspapers and in pamphelets.
(2)

Methodology for price survey

The government agencies concerned wi I I continue to endeavor to
grasp the present conditions of domestic and overseas price
differentials to provide detai led information to consumers and
i ndust r i es.
The surveys wi I I be done mainly from the standpoint of consumers'
interest. Methodology, product focus, identification of price
-

VI- 3

-

differentials and analysIs of the surveys wi I I be undertaken
transparent Iy.
For the purpose of SI I fol low-up by the Government of Japan and U.S.
Government, these Issues wi I I be addressed and discussed in a
deliberative manner.
Such surveys wi I I not be mandatory, nor wi I I they compel the
disclosure of trade secrets.

The dissemination of comparative price

Information will not be done In a manner whch discriminates against
Imports or Interferes with individual firm pricing decisions.
3.

Promotion of Deregulation

The Second Counci I for the Promotion of Administrative Reform made
an extensive study on deregulation, and the Government of Japan has
been engaged In the promotion of deregulation based upon the
recommendat ions of the Counc i I.
Specifically, the Cabinet decided, in December 1988, on the
General Plan for the Promotion of Deregulation to promote the reform of
publ ic regulations, basing its decision on the recommendations made by
the Second Counc i I. In add i t i on, the Gove rn men t of Japan dec i ded to
continue active promotion of deregulation in its Administrative Reform
Plan of 1990 (Cabinet Decision, December, 1989), and the agencies
concerned have been making the utmost efforts in accordance with this
deCISion.
As the Second Council was dissolved on April 19 this year, the
Government of Japan, after considering the most effective scheme
thereafter for the continued promotion of administrative reform,
inc Iud Ing de regu Iat ion, dec i ded to estab I ish the Th i rd Counc iii n the
Office of the Prime Minister. The bi II for that purpose passed the Diet,
on June 26. The Th i rd Counc i I wi I I focus on the imp Iemen tat i on of the
recommendations of the Second Counci I and is expected to identify new
areas for deregulation.

-

VI- 4

-

4.

Further Steps Based on the Final Report of the SI I

In addition to the measures I isted above, the Government of Japan
wi I I take concrete steps with respect to the structural problems
identified in this final report.
Some of them are described below, and it is expected that those
steps wi I I al low price mechanisms to work more effectively in the
Japanese market.
These measures wi I I be implemented in conjunction with the SIX
pol icy pi I lars and 52 measures decided in December 1989 and January
1990 by the Government-LDP Joint Headquarters.
(1)

Deregulation of the distribution system, including the Large-Scale
Retai I Store Law, I iquor sales, trucking and other businesses

The government agencies concerned wi I I endeavor to improve
conditions for free and fair competition in the distribution system
th rough var i ous measu res. These wi I I inc Iude the i mmed i ate re Iaxat ion
of implementation and subsequent amendment of the Large-Scale Retai I
Store Law and the Government of Japan encouragement to private firms to
make their procurement transparent and non-discriminatory.
The Government of Japan has establ ished the goal of 24 hour import
clearance system (from presentation of import declaration to import
permit) for normal cargo imports. This can have a positive long-term
effect on the cost of imports entering the Japanese market.
(2)

Promotion of fair and free competition in the market through the
enhancement of the Antimonopoly Act and its enforcement

In order to enhance enforcement against violations, the Government
of Japan plans to submit a bi I I to revise the Antimonopoly Act to the
Diet during the next regular session, to raise the surcharges against
cartels so that they effectively deter violations of the Antimonopoly
Act.

- ,"_:=:, -

More criminal penalties UJi II be uti I ized in the future,

by the

FTC's accusation of Illegal activities violating the Antimonopoly Act
to seek crl~lnal penalties for them.

ApprODrlate measures UJI!! be taken so that the current damage
rerf1edy sys tern

The FTC

WI

WI

I I be effect I ve I y ut iii zed.

I I no t a I loUJ recess i on ca de I s to be used to impede

Imports.

(3)

Increase of Japanese overhead capital

The Government of Japan notes that these efforts wi I I include the
substantial

increase in social overhead capital.

including that which

relates to the entry and distribution of imported products in Ja~an.

Bui Iding on the principle "to boost domestic investment.

Improve

social overhead capital and to reduce the shortage of investment
relative to savings and to the size of the Japanese economy." the newly
I au nc he d ., Bas I c P I an for the Pub I i c I nve s t men t" wh i c h s e r v e s as g u i din 9
principles for steady accumulation of the social overhead capital
toward the tUJenty-f i rst century,

inc I udes the aggregate investment

expend i ture of about 430 t rill i on yen for the decade.

Through the firm implementation of the plan,

the levels of social

overhead capital accumulation of Japan would be broadly comparable to
those of other major industrial countries at the beginning of the twenty
-f I rst century.

(4)

Efforts to rationalize land prices

The Government of Japan UJi I I implement a wide range of measures
with respect to the land problem.

These include measures which

encourage Increased supply of avai lable land for bui Idings with
necessary faci I ities such as publ ic and commercial faci I ities,
Including the es:ablishment of a new system for identifying and
-

IV - 6

-

promoting the uti I ization of idle land, such as unused plant sites, by
the end of 1990. Loca I autho r it i es wi I I be encou raged to ut iii ze the
new system. The Government of Japan wi I I set a goal of converting idle
and underuti I ized state-owned la~ to productive uses by the end of
FY 1991.

The Government of Japan wi I I also review the land taxation system,
as wei I as the Land Lease Law and the House Lease Law in order to
Improve the legal relationship between lessors and lessees.
(Note) Ful I and precise contents of the measures above are described
in the related part of this final report.
5.

Submission of the Results of Price Surveys and Joint Activities

Recognizing that changes in relative prices can be significent!y
related to structural matters, the Government of Japan and U.S.
Government wi I I cooperate on SI I fol low-up action to track price
differentials in the two markets.
The Government of Japan wi II submit the results of price surveys
relevant to the SI I fol low-up process and discuss them with regard to

(1)

S II issues.
(2) The Government of Japan wi II conduct joint price surveys with the
U. S. Government, as agreed. These surveys wi II be discussed in the
senior level SI I fol low-up process, and uti I ize methodology and
procedures as described in Section 2. (2).

-

IV -7

-

Structural Impediments in the U.S. Economy

The Government of Japan has identified several conditions in the U.S. economy
which may impede balance of payments adjustment and long-term competitiveness and
has offered helpful suggestions to remedy these conditions. Below is a review of U.S.
initiatives that address the issues raised by the Government of Japan.

I.

Saving and Investment Patterns

An important goal of U.S. economic policy is to continue to reduce the U.S.
current account deficit. Raising U.S. saving rates -- by reducing the Federal budget deficit
and increasing private saving -- would make an important contribution toward the
reduction of the Nation's current account imbalance. Increasing the pool of savings
would also contribute to lower interest rates, thereby facilitating investment, productivity
and economic growth in the U.S. and in other countries. The Administration is taking
action to promote saving by both the public and private sectors.

Public Sector: Deficit Reduction and Government Saving
The top budget priorities are to eliminate the Federal budget deficit, in accordance
with the Gramm-Rudman-Hollings (G-R-H) budget law, and to reform the budgeting
process. The Administration supports improving the G-R-H budget law, which requires
a balanced budget by FY 1993, by extending and strengthening the law so that it applies
beyond FY 1993 and incorporates an automatic second sequester. Once a balanced
budget is achieved, projected surpluses will be used to reduce the Federal government's
outstanding debt.
Since the publication of the SII "Interim Report and Assessment", President Bush
has reaffirmed his commitment to achieving these aims by initiating negotiations with
Congressional leaders to develop a responsible and lasting solution to Federal budgetary
imbalances.
On June 26, 1990, the President issued the following statement reviewing the status
of these negotiations: "It is clear to me that both the size of the deficit problem and the
need for a package that can be enacted require all of the following: entitlement and
mandatory program reform; tax revenue increases; growth incentives; discretionary
spending reductions; orderly reductions in defense expenditures; and budget process reform
-- to assure that any Bipartisan agreement is enforceable and that the deficit problem is
brought under responsible control. The Bipartisan leadership agree with me on these
points".
1

Federal Budget Deficit
o

Substantial progress has been made on reducing the Federal budget deficit.
It has been cut from 6.3% of GNP in FY 1983 to 2.9% in FY 1989.

o

In FY 1990, following the procedures in the Gramm-Rudman-Hollings (GR-H) budget law, the President ordered a sequester. He demonstrated his
fiscal resolve by announcing his willingness to operate with the sequester for
the entire fiscal year if necessary, and by not canceling the budget savings
achieved through the sequester. This reversed past practice and set a strong
precedent for future fiscal discipline.

The Budget Negotiations
o

The purpose of the Budget Summit is to produce a Federal budget that will:
reduce the deficit substantially on a multi-year basis;
allow the economy to continue to grow;
strengthen the budget process; and
avoid the adverse economic and programmatic effects of a budget
stalemate.

o

When initiating the budget negotiations with the Congressional leadership,
the President stressed that the discussion should proceed without
preconditions on what should or should not be discussed.

a

The budget negotiations are continuing. Many of the policy initiatives
described in the "Interim Report and Assessment", including suggestions by
the Government of Japan, have been discussed already in the Budget
Summit.
These issues include spending and revenue measures needed to reach
a balanced budget, various budget process reforms, and the budgetary
treatment of social security.

o

Future se~sions of the ~udget Summit will undoubtedly continue discussions
of th~se l:ems a~d wIll include discussions of the other policy initiatives
descnbed In the Interim Report and Assessment" as well.
2

The Budget Process
During the past year, weaknesses in the current budgeting process have been
recognized. The Administration has supported the following reforms and shall make best
efforts for them to be implemented:
o

A stronger Gramm-Rudman-Hollings (G-R-H) budget law, including:
an automatic second sequester during the fiscal year. This would
close the principal loophole in the G-R-H, which is that spending
increases and revenue reductions enacted after October 15 do not
count against the deficit target and do not trigger a sequester. Any
deficit effect of new policy actions would be added to the calculation.
the use of updated economic and technical assumptions for the
purpose of assessing whether the G-R-H targets have been exceeded
and setting second sequester levels.
a requirement for a super-majority vote to cancel a sequester. This
would create a strong incentive to make the necessary reductions to
avoid a sequester in the first instance. Should a sequester occur, this
requirement would make it more difficult for Congress to restore the
expenditures and reduce the savings achieved by the spending
reductions.
automatic off-set rules. Equal off-sets to both budget authority and
outlays would be required for supplemental appropriatibns.
extending G-R-H beyond FY 1993, to require a balanced budget for
each fiscal year thereafter.

o

Legislative line-item veto. On April 25, 1990, the President reiterated his
support for the Legislative Line-Item Veto Act of 1989 (S. 1553), so-called
"enhanced rescission authority", which would enable the President to rescind
spending programs of lower priority. This legislation would provide the
President with a realistic option to disapprove special interest items, while
preserving the right of Congress to overturn the President's veto by a vote
on each.

3

o

Joint budget resolution. The annual budget resolution would be converted
from a concurrent resolution, which does not need the President's approval,
to a joint resolution, which does. This would ensure that budget negotiations,
similar to those leading to the Bipartisan Budget Agreements of recent years,
would occur early in the process. The result would be less conflict later over
individual appropriations bills, revenue measures, and spending measures
included in reconciliation bills.

o

Biennial budgeting. The budget process would cover two years. Biennial
budgeting would free time for both Congress and the Administration to
pursue improved program management.

o

Supplemental appropriations restraints. Formal procedures would ensure
restraint in the use of supplemental appropriations. These appropriations
have the potential to undermine any discipline exercised during the regular
appropriations process. The needed rule would either limit supplemental
increases to amounts provided in a separate contingency allowance (that
would be reserved for funding emergencies outside of regular appropriations
bills), or would require that equal off-sets to both budget authority and
outlays be provided for in the legislation (as proposed for the G-R-H budget
law).
The off-set would apply automatically; that is, if a full off-set is not
provided for explicitly, then a uniform, across-the-board reduction
would be applied to discretionary accounts in the same appropriations
act.

o

Credit reform. The Administration has proposed a change in the treatment
of credit programs that would result in measuring credit activity on an
expenditure basis equivalent to other Federal spending.
Support for the basic principle of credit reform appears to be
widespread in the House and Senate Budget Committees, the
Congressional Budget Office and the General Accounting Office.

4

o

Balanced budget amendment. While the G-R-H balanced budget law has
brought some additional discipline to the process, it has not been enough.
For this reason, the President, on April 25, 1990, called for a constitutional
requirement to balance the budget in order to counter forces demanding
higher spending for particular purposes.
The President endorsed Senate Joint Resolution 12, a balanced budget
amendment introduced by Senator Thurmond, but he urged that it be
changed so that the mandate for a balanced budget be effective
beginning with FY 1993, the year that the G-R-H law requires
elimination of the deficit.
The proposed amendment would require that outlays not exceed
receipts, thus allowing the budget to be balanced or to run a surplus.

o

Constitutional line-item veto authority. On April 25, 1990, the President
transmitted to the Congress a proposed constitutional amendment to create
a line-item veto applicable to bills containing spending authority. The lineitem veto is a tool the President, as the Nation's representative of the
general interest, would use to curb the demands for special interest spending.
Under the current system, the President faces the choice of vetoing
an entire bill, which is usually not a practical choice, or proposing a
rescission, which Congress can, and usually does, ignore.

5

Social Security Surpluses
The President's FY 1991 budget proposed a Social Security Integrity and Debt
Reduction Fund (SSIDRF) to ensure that anticipated surpluses in the social security
program are not spent for other purposes. Instead, they would be applied to reduce the
Federal government's public1y held debt. By retiring government debt and, in effect,
balancing the non-social security budget, anticipated surpluses would be injected into the
~ation's capital markets. Thus, the Federal government would become a net saver -- a
source of funds for enhanced growth.
o

The proposed SSIDRF would have the following key elements:
The social security trust funds would be treated as they are now,
with their reserve balances building up.
Beginning in FY 1993, the SSIDRF would receive each year, as
outlays, an amount equivalent to an increasing portion of the projected
social security operating surplus (reaching 100 percent in 1996). The
fund would be obliged to use these outlays to reduce Federal debt.

In the near term, savings allocated to the SSIDRF would rise quickly,
from an estimated 0.3% of GNP in 1993 to an estimated 1.5% of
GNP in 1995.
The G-R-H law would be extended beyond FY 1993 and would
require a balanced budget thereafter, including the payment to the
new fund.
The required payment to the fund would be counted as an outlay
and the budget would have to be balanced including this outlay:
o

Apart from increasing national savings, the merits of this approach include:
The social security trust fund reserves would be protected and would
continue to build up for the payment of future retirees.
The ~udget would be balanced without, in effect, relying on the social
secunty reserves, and some of the national debt would be retired.
There would be no unified budget "surplus" available to create a
temptation for additional spending.

o

There are other ways to achieve these goals, and the Administration is
6

working with the Congress to find a mutually acceptable reform in the
budgetary treatment of social security. As noted above, some discussions of
these issues have already taken place in the Budget Summit.
Revenue Developments
o

Federal revenues have grown steadily during the current, 8-year economic
expansion. In each year since the expansion began, Federal revenues have
exceeded the average of 18% of GNP experienced during the 1950-1979
period. Revenues are projected to increase further in FY 1991, remaining
at historically high levels as a proportion of GNP.

o

The projected increase in revenues in FY 1991 comes largely from a
projected increase in incomes, but additional steps are being proposed which
would affect revenues. For example, the President's budget for FY 1991
proposed:
Extending social security retirement coverage to those state and local
employees not currently participating in public employee retirement
programs. This measure would provide coverage for approximately
4 million state and local employees. This extension of coverage is
expected to yield revenues of $2.1 billion in FY 1991, and more in
future years.
Providing coverage for all state and local government employees
under the Medicare Hospital Insurance program. This proposed
extension, to take effect on October 1, 1990, would yield an
anticipated $1.7 billion in FY 1991.
Reducing the rates on capital gains will increase Federal revenues
(see Lower Capital Gains Tax Rates, below).

7

Raising a variety of user fees. For example, the air passenger tax
would be increased to 10%, the air freight tax to 6.25%, the noncommercial aviation gasoline tax to 15 cents per gallon, and the noncommercial jet fuel tax to 17.5 cents per gallon. These proposals
would raise $500 million for the Airport and Airway Trust Fund in
FY 1991, and more in future years. The ad valorem fee on shippers
would be increased, yielding an estimated $300 million in FY 1991
and $1.7 billion from FY 1991-5. Taken together, proposed user fee
increases would raise $1 billion in FY 1991 and $7.8 billion from FY

1991-5.
Making permanent the 3% communications excise tax. If enacted,
this extension would yield an estimated $1.6 billion in FY 1991, and
more in future years.
o

In addition to these revenue measures, the IRS has identified several
management reforms and opportunities for increased enforcement that are
expected to yield more revenue. Some of these are listed below.
Resources will be reallocated to accelerate the examination process
for tax shelter cases, making it possible to close such cases more
quickly. Significant cases will be prioritized and given expeditious
handling. It is estimated that this reallocation of resources will yield
an additional $349 million in FY 1991.
Settlement authority for appeals will be delegated to the examiners
of the Coordinated Examination Program on the basis of historical
appeals settlement precedents. The result will be an acceleration of
the receipt of taxes, penalties, and interest. The effect on FY 1991
revenues is estimated to be $547 million.
Resources will be shifted to conduct actuarial examinations of small
retirement plans, increasing the number of examinations in this area
?,om the previously planned 700 to 18,000. The revenue effect begins
m FY 1990, with additional collections of $64 million. An additional
$602 million is anticipated for FY 1991.

~esources will be reallocated from examinations staff to appeals staff
m order to help close targeted large cases in the appeals process.
The ~S plans to target between 30 and 50 cases in FY 1991, yielding
collections of approximately $1 billion in that year.

8

Financial Safety and Soundness
The failure of many Federally insured savings and loan institutions, and the level
of Federal funding required to resolve the thrift problem, have renewed attention on other
areas in which the Government may be exposed to financial risks. The Administration
and the Congress are taking actions that will reduce the likelihood of a similar occurrence
in the future.
o

President Bush, in his FY 1991 Budget, gave recognition to the underwriting
risks associated with Federal credit programs. He suggested that "structural
reforms and better incentives for evaluating risk can preserve the benefits
of Federal credit programs while avoiding excessive Federal risk".

o

The Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA) has remedied conditions which contributed to the savings and
loan problem. Among other things, the Act:
increased capital standards;
separated regulatory and insurance functions; and
strengthened enforcement.

o

In May 1990, the Treasury Department submitted to Congress a major study
of the financial safety and soundness of the Government-sponsored
enterprises (GSEs), and the risks associated with each. A second study of
this subject will be submitted by May 15, 1991. Treasuris proposals would
reduce risk to the taxpayer while ensuring the long-term solvency of GSEs
by:
ensuring that each GSE has a significant amount of its own capital
at risk;
requiring each GSE to obtain a triple-A rating, absent any implicit
Government guarantee, from at least two of the nationally recognized
credit rating agencies;
separating the regulation of GSE programs from the regulation of
standards of financial safety and soundness;
requiring disclosure of the value of the Government's financial
support.

9

o

The Treasury Department is currently engaged in a study which investigates
and discusses how the exposure of the Federal government, as the
underwriter of Federal deposit insurance, can be reduced. The Federal
deposit insurance study will be submitted by February 9, 1991 and possibly
earlier.

Private Sector. Incentives to Save and Invest
Though still below historical levels, the personal saving rate in the U.S. seems to
be improving. It reached 5.4% in 1989, up from a trough of 3.2% in 1987, and it now
appears to be moving higher. The Administration's Working Group on Savings and the
Cost of Capital considered numerous options to stimulate personal savings. As a result
of this review and analysis, the Administration has proposed to Congress several initiatives,
grouped together as the Savings and Economic Growth Act (SEGA), which are designed
to stimulate private saving and investment further.
o

The Savings and Economic Growth Act of 1990 (S. 2071) was introduced
by Senator Packwood on February 6, 1990, and has been referred to the
Senate Finance Committee for consideration. The House version of SEGA,
introduced the following day by Representative Archer, has been referred
to the Ways and Means Committee.

o

The proposals comprising SEGA (outlined below) are being discussed in
the Budget Summit now underway, and the Administration shall make best
efforts to realize them.

New Family Savings Accounts
o

The Administration has·· proposed the introduction of Family Savings
Accounts (FSAs). FSAs would stimulate private saving by allowing tax-free
earnings on contnbutions to these accounts.
Individuals would be able to make non-deductible contributions of
up to $2500 per year and couples up to $5000 per year, provided the
taxpayer's adjusted gross income is less than $60,000 per year (less
than $100,000 for heads of households, and less than $120,000 for
married couples filing joint returns).
Contnbutions to FSAs would be allowed in addition to contributions
to qualified pension plans, IRAs, 401(k) plans, and other tax-favored
forms of saving.
10

Earnings on contnbutions retained in the FSA for at least seven years
would be eligtble for full tax exemption upon withdrawal. Withdrawals
of earnings allocable to contnbutions retained in the FSA for less than
three years would be subject to both a 10% excise tax penalty and to
income tax. Withdrawals of earnings allocable to contnbutions
retained in the FSA for three to seven years would be subject only
to income tax.

Enhanced Individual Retirement Accounts
o

The Administration has proposed improving· existing Individual Retirement
Accounts (IRAs) by making them more attractive to savers.
Withdrawals of up to $10,000 per taxpayer would be allowed for
eligtble home purchases.
The 10 percent excise tax on early withdrawals would be waived for
eligtble taxpayers.
Eligtbility for penalty-free withdrawals would be limited to individuals
who did not own a home in the last three years and are purchasing
or constructing a principal residence that costs no more than 110%
of the median home price in the area where the residence is located.

Lower Capital Gains Tax Rates
o

The Administration has proposed lowering the effective tax rates on capital
gains. The proposal would induce more saving and investment by raising
after-tax rates of return, especially for long-term investment.
When fully effective in 1992, the exclusion on capital gains would be
30% for assets held 3 years or more, 20% for assets held at least 2
years (but less than 3 years), and 10% for assets held at least one
year (but less than 2 years).
The holding period requirements are phased in. For dispositions of
assets in 1990, the 30 percent exclusion applies to all assets held at
least 1 year. For dispositions in 1991, assets held 2 years receive the
30 percent exclusion, and assets held 1 year receive a 20 percent
exclusion.

11

The proposal would apply to all individual capital assets except
collectibles (e.g., works of art, antiques, gems, etc.).
Depreciation deductions would be recaptured in full as ordinary
income.
Excluded capital gains are included in the alternative minimum tax.
As a result of these exclusions, the effective tax rates applicable to

capital gains on qualified assets by a taxpayer in the 28 percent tax
bracket would be, respectively, 19.6 percent, 22.4 percent, and 25.2
percent.

Other Incentives to Save and Invest
The Administration continues to support strongly the measures to promote saving
that have been proposed in the President's FY 1991 budget (and described above). These
new initiatives win usefully supplement the substantial tax inducements now being offered
to millions of American savers.
o

The President's FY 1991 budget projects that the tax exclusion on
contnbutions to and earnings in pension plans will be worth $54.8 billion in
that fiscal year.

o

The President's FY 1991 budget retains the exclusion from Federal tax of
all accrued capital gains on assets held at the time of death. This
inducement to private saving is estimated to be worth $14.5 billion in FY
1991.

o

The Secretary of the Treasury has testified against the double taxation of
dividends. The Department of the Treasury is currently studying this issue.
This study should be completed in the autumn of 1990. No legislation is
expected in 1990.

12

II.

Corporation Investment Activities and Supply Capacity:
Competitiveness

Improvement of U.S.

Investment in U.S.-based production capacity would enhance the competitiveness
of exports from the United States. Changes in certain U.S. laws and regulations, as well
as the continued openness of the United States to foreign investment, will facilitate
productive investment in the United States.

Antitrust Reform
o

The Administration has forwarded legislation to Congress, introduced in the
Senate as S. 2692, which would reduce uncertainty about the treatment of
joint production ventures under the antitrust laws. The bill would promote
joint production ventures that enhance competition, while retaining
appropriate safeguards for consumers.

o

The Administration will actively encourage speedy enactment of this
legislation.

o

When an antitrust lawsuit is filed against a joint production venture, the bill
would require the courts to take into account the competitive benefits of
the venture as well as its costs.

o

For joint production ventures that are notified to the government, the
legislation would limit antitrust liability to actual damages rather than the
current treble damage liability.

o

Under the Administration's proposed legislation, joint production ventures
would receive the benefits of the law, regardless of the nationality of the
owners or the location of the facilities. In connection with joint venture
legislation, the Administration opposes provisions that would afford less
favorable treatment under the antitrust laws to firms with foreign ownership
or to firms with joint venture facilities located outside the United States.

o

Upon enactment of this legislation, all stages of joint production -- from the
beginning stage of joint R&D activities to the final stage of joint production
_ would be covered by the 1984 National Cooperative Research Act, as
amended. United States Government guidelines, either those in effect or
those to be issued within a reasonable period of time after such enactment,
will clarify the treatment of joint research and production activities under the
antitrust laws.

13

Product Liability Reform
o

Product liability reform is a top priority of the Bush Administration.

o

The Administration strongly endorses the Product Liability Coordinating
Committee (PLCC) Bill (S. 14(0) that would reform product liability laws.

o

The PLCC Bill was voted out of the Senate Commerce Committee in May
1990 and was referred jointly to the Senate Judiciary and Senate Labor
Committees. It is possible that the legislation could be voted on as early as
mid-September.

o

The PLCC Bill would contnbute to uniformity in all 50 states and limit
damage awards.
It is designed to restore basic principles of fairness: adequate
compensation for accident victims; fault-based liability; and dispute
resolution.
The result would be to cut down on excessive litigation and the cost
of doing business in the U.S.. It would also lessen disincentives to
develop new products and other innovations.

o

Features of the PLCC Bill are:
The elimination of joint and several liability for non-economic damages
(pain and suffering), but not for economic damages (medical expenses,
lost wages).

An expedited claims settlement procedure, which would benefit both
parties to an action.
Uniform rules that establish the liability of product sellers.
The improvement of the law governing punitive damage awards.
The bill provides a uniform standard that punitive damages may be
aw~rded only if there is "clear and convincing" evidence that the
actIOns of the defendant show a "conscious, flagrant indifference to
safety".
A two year statute of limitations from the time a claimant discovers
both his harm and its cause.
14

A 25 year-statute of repose for capital goods. A statute of repose
presumes that after a product has been in the marketplace for a
certain length of time without causing harm the manufacturer should
not be sued for an alleged defect in the product. A small proportion
of the states now have such statutes.
A prolubition on double recovery. Damages would be reduced by
the amount of worker's compensation benefits available to an injured
person.
Policy Toward Foreign Direct Investment
o

United States policy toward foreign direct investment has long recognized
that a free flow of investment capital across borders benefits both host and
investor countries. The United States generally provides non-discriminatory
treatment of foreign investors under U.S. laws and regulations. It is in the
interests of U.S. consumers, workers and investors to maintain this open and
non-discriminatory policy.

o

In his Economic Report transmitted to the Congress
President Bush wrote:

In

February 1990,

To serve the interests of all Americans, we must open markets here
and abroad, not close them. I will strongly resist any attempts to
hinder the free international flows of investment capital, which have
benefitted workers and consumers here and abroad.
o

The Administration will issue a detailed policy statement reaffirming its
strong commitment to an open and non-discriminatory direct investment
policy. This statement will be issued as soon as possible follOwing release
of the SII Joint Report.

o

For over 200 years, the United States has welcomed foreign investment and,
at the same time, protected vital national security concerns. The U.S.
restricts foreign investment only to protect the national security. It has
reserved certain sectors under the OECD Code on Liberalization of Capital
Movements. The Exon-Florio provision of the Omnibus Trade Act of 1988,
which authorizes the President to prohibit foreign acquisitions that threaten
to impair the national security, is consistent with this long standing policy.

15

o

The President delegated his authority to review foreign acquisitions that
might impair the national security to the Committee on Foreign Inves~ment
in the United States (CFIUS). As of June 13, 1990, CFIUS ,had reVIewed
over 375 transactions, formally investigated ten, and referred six to the
President for a decision. In only one case has the President prohibited a
transaction pursuant to Exon-Florio.
The Administration is in the process of preparing the final regulations
for the implementation of Exon-Florio. These will be released soon.

o

In line with the Administration's open investment policy and the provisions
of the law, the Exon-Florio authority will be used only when no other
measures are adequate or appropriate to protect the national security. On
May 29, 1990, the Secretary of the Treasury reaffirmed that Exon-Florio
''has not been and will not be used as a barrier to direct investment in the
United States".

o

The Administration has strongly opposed the Bryant Bill (H.R. 5), which
would require registration and disclosure of foreign direct investment in the
United States. The Congress is no longer actively considering this bill. The
Administration also opposes other legislation containing foreign registration
and disclosure requirements similar to those in H.R. 5.

Tax Treatment of Foreign Investors

o

The U.S. and Japan have entered into a tax treaty that provides for nondiscriminatory treatment of business enterprises of the two countries.

o

The Administration will seek to ensure that Japanese investors will be given
a non-discriminatory treatment under the U. S. - Japan Tax Treaty.

o

The Treasury Department has made clear to Congress its opposition to
pending legislation which would tax certain foreign shareholders on capital
gains from the sale of stock in U.S. corporations.

16

Other Measures to Build Supply Capacity
o

In order to reduce U.S. reliance on oil imports, the President's FY 1991
budget includes proposals for tax credits to encourage the discovery of new
oil and gas fields and the reclamation of old ones.

o

Capital investment in productive capacity will also be encouraged by the
Administration's proposals that would lower the cost of capital.

17

III.

Corporate Behavior

The productivity of U.S. workers and the competitiveness of U.S. corporations are
affected by the decisions of corporate managers. These managers, in tum, are influenced
by the behavior of company shareholders. The Administration is pursuing policies which
will encourage managers to take decisions that will benefit their companies in the longterm and thereby making them more competitive. The Administration also recognizes
that investment in research, experimentation and development can improve a company's
competitiveness.

Long-tenn Outlook
o

Long-term investment (as well as short-term) can be discouraged by the
high cost of capital in the United States, and by a tax system which penalizes
saving and investment.

o

The Bush Administration is pursuing policies to lower the cost of capital.
Such policies include lowering the effective tax rate on capital gains,
promoting private saving, and eliminating Federal dis-saving. These policies
are intended to lower the cost of capital for companies in the U.S., thereby
encouraging long-term investment and long-term planning by management.

o

The Administration's Working Group on Savings and the Cost of Capital
continues to review proposals that could result in a lower cost of capital for
companies in the U.S ..

o

In addition to efforts to reduce the cost of capital, the Administration
continues to seek ways to foster a long-term investment horizon on the part
of corporate managers. The Treasury is conducting a study on how the
relationship between managers and owners of U.S. corporations affects longterm competitiveness. The study is in process and should be completed in
the autumn of 1990.

o

As part of the study of the relationship between company owners and

managers, the Treasury is examining the role executive compensation plays
in affecting company performance and competitiveness. In this study, the
Treasury is also examining which government barriers, if any, adversely affect
the long-term time horizons of investors.

18

o

The Secretary of the Treasury and other top Administration officials are
continuously speaking to groups of corporate executives on the need for
long-term thinking in business. Vice President Quayle, through the Council
on Competitiveness, has also taken an active role in promoting national
competitiveness and long-term thinking.

Highly Leveraged Transactions
o

Even though the market has demonstrated its capacity to correct itself, USG
regulators and other regulatory entities have taken steps to ensure that
prudent LBO lending practices continue. These steps include:
u.S. commercial banks have been, and continue to be, proscribed
from owning high yield debt. Long-standing regulations allow
commercial banks to own investment grade securities only.
Bank regulators have increased scrutiny and standards for bank
financing of highly leveraged transactions (HLTs). This effort has
been facilitated because, in February 1990, the three major bank
regulators, the Office of Comptroller of the Currency (OCC), the
Federal Deposit Insurance Corporation (FDIC) and the Federal
Reserve Board, adopted a common definition of HLTs.
As a result of the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 (FIRREA), savings and loan institutions
must divest their portfolios of high yield securities during the next
five years.
The Securities and Exchange Commission (SEC) recently requested
that all financial institutions, including insurance companies, increase
disclosures regarding high yield debt.
Insurance companies, which are regulated by the states, also face
more stringent reporting standards. On June 6, 1990, the National
Association of Insurance Commissioners adopted reporting changes
that will provide insurance regulators with more useful information
regarding insurance company holdings of high yield bonds. The new
system, which will apply to 1990 insurance filings, expands the number
of classifications from four to six and provides for the gradual
acceleration of mandatory security valuation reserves.

19

o

Certain tax provisions affecting highly leveraged transactions were enacted
in 1989. They were:
In 1989, Congress enacted tax legislation (Section 7211, which amends
Code section 172) that limits the carry-back of a net operating loss
for companies which have undergone either a major stock acquisition
or an excess distnbution. This provision was enacted to prohibit
partial financing of leveraged transactions through tax refunds
generated by carry-backs of net operating losses when such losses are
incurred as a result of interest deductions generated from the
financing of the transaction.

The Budget Reconciliation Act of 1989 limited interest deductions
for certain high yield obligations known as Original Issue Discount
Obligations (OIDs). (These securities are often characterized by
deferred interest or paid-in-kind provisions.) For tax purposes, the
yield on these securities is divided into two parts: a deferred portion
and a disqualified portion (the portion in excess of the Applicable
Federal Rate (AFR)). The owner ofsuch securities may deduct the
interest from the deferred portion when the interest is actually paid.
No interest deduction may be taken for the disqualified portion.

20

IV.

Government Regulation

Certain government regulations discourage international trade and competition.
Progress is being made to deregulate controls on both exports and imports.
Export Deregulation
o

In view of the changing strategic situation, the U.S. and its allies on the
Coordinating Committee for Multilateral Export Controls (COCOM) have
COCOM is discussing the
agreed to streamline export controls.
hberalization of export controls in machine tools, telecommunications and
computers as a first step to reducing the number of controlled goods.

o

COCOM has also agreed to guidelines for member countries to eliminate
most licensing requirements for trade among COCOM member countries.
The U.S. plans to implement its new system this summer.

o

In July 1989, the U.S. removed all controls on the reexport of dual use
goods and technologies (except supercomputers and electronic listening
devices) into and among COCOM member countries (and Finland and
Sweden), as provided for in Section 774.2(k) of the Export Administration
Regulations.

o

New export administration regulations issued in October 1989 eliminated
the requirement for U.S. reexport authorization for exported U.S. goods
that are incorporated as parts and components and comprise less than 25
percent of the end product. This hberalization eliminated reexport controls
on large numbers of telecommunications, electronic and instrumentation
equipment imported into European nations and Japan from the U.S ..

o

The U.S. Government is reviewing and will consider changing its export
control scheme to allow exports of strategic products and technology by
those countries such as Japan which impose strict export control on those
items without U.S. re-export license irrespective of their destination.

21

o

The U.S. has significantly reduced trade impediments resulting from shon
supply export controls. The Administration has revised U.S. short supply
policy with regard to agricultural commodities. The Administration has
proposed in the Uruguay Round that GAIT-contracting parties should be
prohIbited from restricting exports and imports of agricultural food products
for reasons of short supply. The United States is working with its major
trading partners, including Japan, to gain support for elimination of GAIT
Article Xl 2.(a).

Energy Exports
o

The U.S. has made significant progress in eliminating many energy trade
barriers:
In 1985, controls on exports of refined petroleum products were
eliminated as part of the renewal of the Export Administration Act
of 1979.

Exports of crude oil to Canada were substantially decontrolled in
1985, as authorized by both the Energy Policy and Conservation Act
(EPCA) and the Mineral Leasing Act.
Exports of crude oil produced in the state waters of Alaska's Cook
Inlet were allowed in 1986, pursuant to the EPCA of 1976.
From 1988 to 1990, the Administration removed legal and regulatory
barriers to the development of a project to export Alaskan LNG to
Pacific Rim energy markets, as authorized by the Natural Gas Policy
Act.
In January 1990, the Commerce Department submitted a study to
the Congress (prepared in compliance with Section 2424 of the
Omnibus Trade and Competitiveness Act of 1988) which assesses the
benefits and costs of exporting California heavy crude oil. The
Administration supports the study's recommendation for a partial
relaxation of the ban on exports.

22

Import Liberalization
o

On July 25, 1989, President Bush announced the Steel Trade Liberalization
Program to phase out the voluntary restraint agreements (VRA) after two
and a half years and to negotiate the elimination of subsidies and other
trade distorting practices affecting steel.
This program reflects the
President's commitment to a meaningful international consensus and to freer
and fairer trade in steel on a global basis.
As part of this extension and in keeping with overall Administration

policy regarding adjustment measures, major U.S. steel companies
must make substantial commitments to reinvestment in modernization
for enforcement authority to continue. In addition, each of the major
steel companies is required to commit at least one percent of net
cash flow for worker retraining.
Since the inception of VRAs on steel in 1984, the major U.S. steel
producers have spent $8.0 billion on steel-related expenditures,
including plant and equipment, research and development, worker
retraining, and other efforts to adjust and modernize. These
companies have modernized their production facilities, eliminated
excess capacity, and drastically reduced their production costs.
o

VRAs on machine tools, which began on January 1, 1987, are due to expire
on December 31, 1991.
As with steel, and reflecting Administration policy on adjustment,

there is a domestic action plan in place which is intended to facilitate
the revitalization of the U.S. machine tool industry.
Despite thin profits, the machine tool industry has increased
expenditures on research and development and product engineering
and design.
Combined spending on research and new product development
totalled $143 million in 1988 (the most recent data available), or
4.2% of gross sales. By comparison, profits were only 2.1 % of sales
in 1988.
During the last two years, many machine tool companies have
introduced major new models of machining centers, milling machines,
lathes and punching machines.

23

v.

Research and Development

A steady stream of innovative ideas and technological developments will enable
the United States to remain a formidable competitor in international markets. To
maintain this technological flow, the United States must strengthen its research and
development efforts. The Administration has proposed several initiatives to advance U.S.
research and development by both the public and private sectors.

Federally-supported Research and Development
o

The President's FY 1991 budget calls for a $4.5 billion increase in Federal
funding for research and development, to a record high of $71 billion.
Support for civilian R&D will increase by 12% and defense-related R&D
will increase by 4%.

o

A 22% proposed increase for Federal civil space activities includes a 72%
increase for the development of the commercial potential of space, a 47%
increase for manned exploration, a 36% increase for space station
development, and a 22% increase for scientific exploration.

o

Part of the $4.5 billion expansion in Federal R&D spending is devoted to
The
a 14% funding increase for the National Science Foundation.
Administration remains committed to doubling the NSF budget by 1993.

o

Other R&D projects with significant implications for civilian technology
development for which Federal funding is proposed in the President's budget
for FY 1991 include:
$537 million for research on semiconductor development and
applications;
$469 million for high-performance computing R&D, including systems
and applications software, networking, and underlying research and
human resource infrastructure;
$192 million for robotics R&D , a 28% increase·,
$50.1 million for the funding of Engineering Research Centers and
$5.2 million for Industry!University Cooperative Research Centers;

24

$10 million for the Advanced Technology Program that provides
grants to industry-led consortia to support development of generic,
pre-competitive technologies;
$5 million to establish Manufacturing Technology Centers that
facilitate the transfer of new and innovative manufacturing technology
to small and medium size businesses; and
$10 million to explore the possibilities of magnetic levitation
transportation, a 400% increase.
o

The President demonstrated his commitment to promote technological
development in the United States by establishing the position of Under
Secretary for Technology at the Commerce Department. The President's
nominee for this position assumed office June 13, 1990.

Private Research and Development
o

The Omrubus Budget Reconciliation Act of 1989 modified the Research
and Experimentation (R&E) credit and extended it for first nine months of
1990. The R&E credit is 20% of qualified research expenses that exceed
a company's base amount (the product of the company's average gross
receipts during the previous four years and the ratio of the company's 198488 R&E to its 1984-88 gross sales).

o

The President's FY 1991 budget would make permanent the R&E credit,
and would revise R&E expense allocation rules. These changes would
encourage firms to establish and expand research facilities by assuring them
that tax incentives will still be available when research is carried out.

o

Private research and development would also be bolstered by lowering the
cost of capital and reducing regulatory and legal barriers to investment (see
policy initiatives described above).

25

Adoption of the Metric System
o

Comments have been received on the proposed update to the "Metric
Conversion Policy for Federal Agencies". The updated version, which
includes stronger guidance for federal metric ~plem~ntation and ~gency
reporting requirements to Congress, will be publIshed In final form In July

1990.
o

Commerce officials continue to meet with standards groups, trade
assOCIatIOns and business advisory groups to encourage use of the metric
system in the private sector.

o

The Secretary of Commerce received supportive responses to his December
1988 letter to the state governors alerting them to the 1988 Trade Act
provisions requiring Federal agencies to use the metric system by the end
of FY 1992 in grants, procurement, and other business-related activities. He
urged the governors to plan similar initiatives at the state level and to name
a senior official to the National Council on State Metrication.

o

In response to the Secretary's letter, 46 states have named officials to the
National Council on State Metrication. The Secretary will continue to urge
greater activity at the state level that will encourage adoption of the metric
system.

o

The General Services Administration (GSA) metrication plan, published in
the Federal Register on April 6, 1990, is expected to become a model for
many other Federal agencies.

o

Through metrication, the GSA will cause, directly and indirectly, many
thousands of u.S. companies to become capable of producing metric
products. This is because the GSA is the largest purchaser of non-defense
ite~s . in the Federal government, and its purchases encompass a large
maJonty of all goods and services used in the economy. In turn, the
stand~rds org~nizations, trade associations, service companies, publishers,
etc. wIll be dnven to become capable of using metric measurements in their
operations.

26

o

Hearings on Federal metrication progress by the Science, Research and
Technology Subcommittee of the House Committee on Science, Space and
Technology, held on April 24, 1990, have stimulated increased activity.
The Department of Energy has announced that the
Superconducting Super Collider will be of metric design.

new

NASA has indicated its intent to strengthen metric requirements for
new projects.
The Department of Transportation is recirculating its metric planning
and transition plan.
o

The Interagency Committee on Metric Policy, comprising senior Federal
officials, held a special meeting on June 19, 1990. The Committee will
develop a timetable for specific actions in carrying out the objectives of
metrication. The newly appointed Under Secretary of Commerce for
Technology, who chairs this committee, took this opportunity to urge greater
priority for metrication in all agencies.

o

The Department of Commerce continues to study ways for the private sector
to expand and increase significantly the use of the metric system.

o

The U.S. Government will provide a progress report on its efforts and future
plans to encourage use of the metric system in the ways described above.

27

VI.

Export Promotion

The President has clearly stated that trade and the competitiveness of U.S. business
are high priorities of his Administration. To this end, the Administration has been
working hard to make U.S. export promotion efforts more effective.
o

The Presidenes FY 1991 budget proposed $159 million for the Commerce
Department's export promotion efforts, an increase of $10 million over 1990.

o

President Bush has directed the Economic Policy Council to undertake a
Commercial Opportunities Initiative to assist U.S. exporters in their
aggressive pursuit of these opportunities in international markets. The
cornerstone of the President's initiative is the Trade Promotion Coordinating
Committee (TPCC) , which will be chaired by the Secretary of Commerce.
The TPCC will, for the first time, unify and streamline Federal trade
promotion activities, including:
Collection and analysis of market information;
Trade events, including trade missions;
Identification of agents and distnbutors;
Dissemination of information on export financing;
Representation of U.S. business interests with officials of foreign
governmental and international organizations;
Assistance in identifying joint venture partners and foreign research
and development projects; and
Counselling on
requirements.

o

foreign

standards,

testing

and

certification

The Department of Commerce is implementing a special export program
aimed specifically at increasing U.S. exports to Japan.
This program focuses on long-term commitments by U.S. firms to
~he Japanese market and capturing a larger share of Japan's public
mfrastructure and overseas development projects.
It also provides services tailored to the needs of small and mediumsized U.S. exporters seeking to enter the Japanese market.
28

Successful implementation and operation of this program will provide
a model for the development of trade promotion plans for other
countries and regions.
o

The U.S. Government will work, in cooperation with the Government of
Japan, to disseminate information to U.S. exporters and others within the
United States on Japanese import procedures.

o

The Department of Commerce is expanding its export promotion activities
in several geographical areas:
Commerce has developed a 3-tiered program to help U.S. companies
respond to the opportunities presented by the integration of the
European Community (EC) into a unified market in 1992.
For Eastern Europe, the Commerce Department has been active in
promoting U.S. business opportunities through a number of trade
missions and, most recently, by establishing the Eastern Europe
Business Information Center.

o

The Commerce Department developed an education program to inform the
U.S. business community, particularly small businesses, about the new trade
and investment opportunities created by the U.S.-Canada Free Trade
Agreement.

29

VII.

Work Force Education and Trainin2

Improving the education and training of the U.S. work force would heighten
America's competitiveness. The Administration has established ambitious goals and plans
to improve the quality of education and training in the United States.

Work Force Education

National Education Goals
o

The President and the Nation's governors recently agreed on a package of
six national educational goals for achieving scholastic excellence and
providing U.S. students with skills to compete in a rapidly changing world.

o

These goals, to be reached by the year 2000, include: a high school
graduation rate of 90% or more; preeminence in the world in math and
science scholastic achievement; full adult literacy; .ensuring that all schools
are free of drugs and violence; and testing that competence has been
achieved at appropriate grade levels in key subject areas such as
mathematics and English.

o

If the ambitious goals of the education summit are to be achieved, then
Federal, state and local governments must commit to work together to
ensure that steady interest be maintained in funding the programs necessary
to achieve these goals over the next ten years.

o

The President's FY 1991 budget reflects these priorities. Under the
President's proposals, total Education Department budget authority would
amount to $24.6 billion, an increase of $500 million over total 1990 budget
authority. This is the largest education budget ever proposed.

30

Excellence in Education Act
o

In February, 1990, the Senate passed the "Excellence in Education Act"
which President Bush had submitted to Congress in 1989. The House of
Representatives has not yet acted on this legislation. The President's FY
1991 budget provides $401 million to support programs proposed in the
Act.

o

The Excellence in Education Act, among other things, would give incentives
to schools to improve educational achievement, expand the use of magnet
schools, reward excellent teachers, and promote the hiring of persons with
proven subject matter knowledge and management abilities to be teachers
and principals.

o

The Administration has proposed, as part of the Excellence in Education
Act, an alternative teacher certification process. Under the Administration's
plan, gifted professionals would be certified to teach elementary and
secondary school, even if they had not followed the traditional course for
teacher certification.

Foreign Language Education
o

The Department of Education has proposed the establishment of a "core"
curriculum in high schools under which students would be required to take,
among other subjects, several years of foreign language training. The
Department has also made a grant to the University of Pittsburgh for the
teaching of Japanese in elementary and secondary schools.

o

Many local school systems are moving ahead on their own in improving
foreign language training. It must be recognized, however, that the U.S. has
a diverse culture with citizens from many countries who already possess
foreign language skills. Students in several U.S. schools systems have been
found to represent over 100 foreign languages because of their backgrounds.

31

Science and Mathematics Education
o

President Bush has directed the appropriate Federal agencies to support
science education programs that will reach students and teachers from the
elementary to post-graduate levels. Accordingly, more than fifteen Federal
agencies have formed a panel to coordinate their actions. Examples of
related activities include:
The President's proposed budget for FY 1991 for the Department of
Education includes $230 million for mathematics and science
education, an increase of $94 million, or nearly 70%. These funds
will be used to improve the preparation of teachers and help to raise
the levels of achievement of American students in mathematics and
science.
The FY 1991 budget for the Department of Education also
$5 million for national science scholars.
This would
undergraduate college scholarships of up to $10,000 per
students who demonstrate excellence and .achievement in
physical, or computer sciences, mathematics or engineering.

includes
provide
year to
the life,

The National Science Foundation budget for FY 1991 provides
approximately $190 million for science and engineering education
activities, including research fellowships and teacher training.
The Department of Energy has developed a number of initiatives to
improve science education for women and minorities. For example,
the Energy Department and the National Aeronautics and Space
Administration (NASA) have reached agreement for a joint program
to design laboratory experiments for children, provide voluntary
science teachers and provide summer training for science teachers.
o

The Office of Educational Research and Improvement has requested
applications for instructional awards to establish eighteen National
Educational Research and Development Centers in such fields as adult
literacy, educational quality of the work force, and the teaching of
mathematics and science.

32

Community Colleges
o

The vast majority of community colleges in the United States are developing
formal links with local businesses in order to make educational experience
more relevant to job requirements.

o

The Department of Labor has launched several projects using community
colleges to develop work-based training models.

Work Force Trainioe
The U.S. Department of Labor, through the appropriate channels, will provide the
Japanese Ministry of Labor with timely updates on the progress that has been made in
the areas mentioned below.

Job Training Partnership Act
o

The programs provided for under the Job Training Partnership Act (JTPA)
are considered highly effective, and the President's FY 1991 budget proposes
spending approximately $4 billion to fund them.

o

The Administration proposed amendments to the JTPA in 1989 which are
intended to revise eligibility criteria to ensure that the program targets the
most disadvantaged; provide more intensive and comprehensive services to
participants; and improve coordination among Federal, state and local
human resource programs.
On June 6, 1990, the Secretary of Labor testified before the House
Education and Labor Committee concerning these proposals.

33

Department of Labor Seven-Point Action Program
In addition to the growing commitment of the private sector to work force
education, the Labor Department has initiated a seven-point action program to improve
the quality of the work force. Elements of this program are:

a

A "School-to-Work Conference", held May 15-17 in Washington, D.C., aimed
at helping non-college bound youth make the transition from school to work.
The conference was attended by high-level representatives from the
public and private sectors who are intimately involved in issues related
to work force training and education. The Secretaries of Labor and
Education participated.
The conference addressed ways to link education directly to workplace
experience and learning, so that non-co lIege-bound youth can become
productively employed.
The Department of Labor has awarded several grants for school-towork demonstration projects.

o

The Secretary's Commission on Achieving Necessary Skills (SCANS) has
been appointed. It is charged with defining the basic skills which American
workers will need to close the gap between educational achievement and
workplace requirements.
William E. Brock, formerly Secretary of Labor and U.S. Trade
Representative, has been appointed Chairman of the Commission.
The Commission will announce, by May 1991, their findings and
recommendations for national guidelines in five sectors to prepare
high school youth for entry into employment. These guidelines will
include basic skills required by high school graduates to achieve work
readiness, including such areas as critical thinking, reading, science
and math.
The Commission held its first meeting on May 18 and decided that
200 businesses will be analyzed regarding their human resource needs.
More than 1,000 jobs will be evaluated according to the precise level
of skill needed in each of seven generic skill areas.

34

The Commission will encourage businesses to undertake a number
of initiatives to make education more relevant to workplace skills,
such as sharing resources with teachers and providing apprenticeships
and scholarships.
o

Solicitation of nominations for the first annual Labor Investing for Tomorrow
(LIFf) awards. These awards will recognize exemplary business-school
partnerships, school-to-work programs, employee training programs and
employee work-life programs.

o

Appointment of a national advisory board on workplace training. The board
will guide the expansion of the apprenticeship concept to new industries and
occupations.

o

Meetings with governors and employers to refocus the Federal-state
employment service system in order to deal with the new era of labor
shortages. Consultations have already been held at the staff level and based
on these discussions Labor Department officials are currently revising their
plan of action.

o

A ''Partners for Tomorrow" program, to involve local businesses and labor
groups more directly with parents and school personnel, will be initiated by
September 1990, and a major conference dedicated to this topic will be
held in the autumn of 1991.

o

A program to survey the best practices by employers in meeting employee
needs, such as fleXIble work schedules, is expected to begin in September of
1990 and then become an ongoing program of the Labor Department.

Work-based Training
o

In January, 1990, the Department of Labor established an Office of WorkBased Learning, which has the primary responsibility for working with
business to assist and encourage effective work-based training programs,
including the Department's school-to-work initiatives.

o

The Department of Labor has launched a series of pilot programs on workbased training. The first phase of these projects, a research phase, has
been completed.
Demonstration sites have been selected and the
contractors are in the process of developing specific training programs. The
Department of Labor will closely monitor implementation and results will be
made public.
35

o

The Human Research Development Institute (HRDI) of the AFL-CIO is
currently implementing three demonstration projects, noted below, as part
of the Upgrading and Career Ladder Program.
HRDI is working with Boeing and the Aerospace Machinists
Industrial Union to develop a training model that integrates
structured, on-the-job training with theoretical instruction.
In two projects, HRDI is working with the health care industry in
Seattle, Washington in conjunction with the local chapter of the
Services Employees International Union.

o

Several Labor Department projects are underway regarding structured workbased training in small firms.
The National Alliance of Business is coordinating a project with the
American Association of Community and Junior Colleges and the
Southern Maine Technical College involving approximately 20
employers. This consortium will train environmental technicians
through a two-year course at the college and integrated work
experience. The employers include mostly small firms involved in
environmental cleanup and waste management, as well as units of
state and local government.
Another project is underway involving small businesses in the services
industry.

o

The Secretary of Labor has recently published a booklet, "Workplace
Learning: Training America's Workers", as part of the Administration's effort
to build a positive perception of, and thereby encourage, work-based
training. This booklet proposes a national work-based training board and
improvements in the national apprenticeship system.

36

o

The National Advisory Board on Work-based Learning will hold its first
meeting by the end of 1990 to provide guidance on expansion of structured
work-based training and on development of a voluntary system to accelerate
such training. Among other things, the Board will explore the following
options:
expanding the number of public/private partnerships with industry
groups to implement structured work-based training programs;
establishing a national, voluntary system for accrediting work-based
training programs and certifying worker skill competencies;
analyzing the effectiveness of various financial incentives for training,
including grant programs, mandatory training programs, and various
tax incentives and credits.

o

In 1990, the U.S. and Japan are exchanging visits of experts on human
resource development. The first visit, by a U.S. delegation comprising
leaders from business, labor and government,. took place in Tokyo from
June 16-24. A complementary visit is planned to the U.S. in November by
a Japanese delegation.

o

Soon after the Japanese visit, an international symposium on skill training
will be held in Washington, D.C.. This symposium will highlight the
Japanese human resource development system and how business, labor and
government work together in Japan to build a quality work force.

37

Innovations with Unemployment Insurance
o

The Labor Department is in the process of testing alternative uses of
unemployment insurance (VI) funds to accelerate jobless workers' return to
work. Two experimental projects are studying the effectiveness of offering
VI claimants a cash incentive to obtain a job as quickly as possible rather
than wait for the expiration of VI benefits (normally 26 weeks). Two other
demonstration projects are designed to help VI recipients set up their own
businesses. In this regard, two distinct types of self-employment allowances
are being tested:
lump sum payments, equal to the total amount of the worker's
remaining VI benefits, to help fund business start-up expenses; and
bi-weekly payments, equal to the claimant's regular VI benefit check,
for income support during the initial period of business planning and
operations.

o

A comprehensive project in New Jersey is testing three possible alternatives
for VI beneficiaries: provision of job search assistance; provision of job
search assistance with referral to Job Training Partnership Programs; and
job search assistance with cash bonuses for early reemployment.

38

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OVERSIGHT BOARD
RESOLUTION FUNDING CORPORATION

FOR RELEASE AT NOON
July 3, 1990
OB 90-36

CONTACT:

Diane Casey
(202) 786-9672

REFCORP ANNOUNCES AUCTION OF $5.0 BILLION OF 30-YEAR BONDS
The Resolution Funding Corporation will auction $5.0 billion
of 30-year bonds on July 10, 1990, to provide funding to the
Resolution Trust Corporation.
The bonds, which will mature July 15, 2020, will be offered
to the public through a yield auction conducted by the Federal
Reserve Banks as fiscal agents to REFCORP. The bonds will be
available in book-entry form only and in minimum denominations of
$1,000. Noncompetitive tenders must be submitted through a
primary dealer or a depositor, institution with a book-entry
account at a Federal Reserve Bank. Only commercial banks and
primary dealers may submit tenders for the accounts of customers.
Noncompetitive tenders will be accepted at the average price of
accepted competitive tenders.
The bonds may be stripped into their separate principal and
interest components in book-entry form and may be reconstituted
into whole bonds on the book-entry system maintained by the
Federal Reserve.
The details on the new securities are contained in the
attached highlights of the offering and in the Resolution Funding
Corporation offering circular dated October 13, 1989, and
offering circular supplement dated July 3, 1990.
000

Attachment

HIGHLIGHTS OF REFCORP
OFFERING TO THE PUBLIC
OF 30-YEAR BONDS
TO BE ISSUED AS OF JULY 15, 1990

Amount offered:
To the public . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,000 million
Description of Security:
Term and type of security . . . . . . . . . . . . . . . . . . . . . • . • 30-year bonds
Series and CUSIP designation . . . . . . . . . . . . . . . . . . . . . Series A-2020
(CUSIP No. 761157AD8)
Settlement date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . July 17, 1990
Maturity date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . July 15, 2020
Interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . To be determined based 01
average of accepted bids
Investment yield . . . . . . . . . . .
To be determined at
auction
Premi urn or discount...... . . . . . . . . . . . . . . . . . . . . . . .. To be determined aff.er
auction
Interest payment dates . . . . . . . . . . . . . . . . . . . . . . . . . . . January 15 and July 15
Minimum denomination available . . . . . . . . . . . . . . . . . . • $1,000
0

__

•••••••••••••••••••

Terms of Sales:
yield auction
Competitive tenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Must be expressed as an
annual yield, with two
decimals, i.e., 7.10%
Noncompetitive tenders . . . . . . . . . . . . . . . . . . . . . . . . . . . Accepted in full at
average price up to
$1,000,000
Accrued interest
payable by investor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest accrues from
July 15, 1990. Amount t,
be determined at auction

Method of sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Payment Terms:
Payment by non-institutional
investors .. . . . . . . . .
..

.

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

Full payment to be
submitted with tender

Deposit guarantee by
designated institutions . . . . . . . . . . . . . . . . . . . . . . . . . . Acceptable

Key Dates:
Receipt of tenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tuesday, July 10, 1990
prior to 1:00 p.m., EDST
Settlement:
Immediately available funds . . . . . . . . . . . . . . . . . . . . . . Tuesday, July 17, 1990

TREASURY NEWS

Deartment Of the Treasury • Washington. D.C . • Telephone 5&&-2041
FOR RELEASE AT 12:00 NOON
July 3, 1990

CONTACT: Office of Financing
202/376-4350

TREASURY'S WEEKLY BILL OFFERING
The Department of the Treasury, by this public notice, invites
tenders for two series of Treasury bills totaling approximately
S18,000 million, to be issued July 12, 1990.
This offering
will provide about $1,900 million of new cash for the Treasury, as
the maturing bills are outstanding in the amount of $16,089 million.
Tenders will be received at Federal Reserve Banks and Branches and at
the Bureau of the Public Debt, Washington, D. C. 20239, prior to 1:00
p.m., Eastern Daylight Saving time, Monday, July 9, 1990.
The two series offered are as follows:
91-day bills (to maturity date) for approximately S9,000
million, representing an additional amount of bills dated
April 12, 1990,
and to mature October 11, 1990
(CUSIP No.
912794 VE 1), currently outstanding in the amount of S8,402 million,
the additional and original bills to be freely interchangeable.
182-day bills for approximately $9,000 million, to be dated
July 12, 1990,
and to mature January 10, 1991
(CUSIP No.
912794 VQ 4).
The bills will be issued on a discount basis under competitive
and noncompetitive bidding, and at maturity their par amount will
be payable without interest.
Both series of bills will be issued
entirely in book-entry form in a minimum amount of SlO,OOO and in
any higher $5,000 multiple, on the records either of the Federal
Reserve Banks and Branches, or of the Department of the Treasury.
The bills will be issued for cashoand in exchange for Treasury
bills maturing July 12, 1990.
Tenders from Federal Reserve
Banks for their own account and as agents for foreign and international monetary authorities will be accepted at the weighted
average bank discount rates of accepted competitive tenders.
Additional amounts of the bills may be issued to Federal Reserve Banks,
as agents for foreign and international monetary authorities, to
the extent that the aggregate amount of tenders for such accounts
exceeds the aggregate amount of maturing bills held by them.
Federal
Reserve Banks currently hold $802
million as agents for foreign
and international monetary authorities, and S4,113 million for their
own account.
Tenders for bills to be maintained on the book-entry
records of the Department of the Treasury should be submitted on Form
PD 5176-1 (for l3-week series) or Form PD 5176-2 (for 26-week series).

NB-864

TREASURY'S 13-, 26-, AND 52-WEEK BILL OFFERINGS, Page 2

Each tender must state the par amount of bills bid for,
which must be a minimum of $10,000. Tenders over $10,000 must
be in multiples of $5,000. competitive tenders must also show
the yield desired, expressed on a bank discount rate basis with
two decimals, e.g., 7.15%.
Fractions may not be used. A single
bidder, as defined in Treasury's single bidder guidelines, shall
not submit noncompetitive tenders totaling more than $1,000,000.
Banking institutions and dealers who make primary
markets in Government securities and report daily to the Federal
Reserve Bank of New York their positions in and borrowings on
such securities may submit tenders for account of customers, if
the names of the customers and the amount for each customer are
furnished.
Others are only permitted to submit tenders for their
own account. Each tender must state the amount of any net long
position in the bills being offered if such position is in excess
of $200 million. This information should reflect positions held
as of one-half hour prior to the closing time for receipt of
tenders on the day of the auction. Such positions would include
bills acquired through "when issued" trading, and futures and
forward transactions as well as holdings of outstanding bills
with the same maturity date as the new offering, e.g., bills
with three months to maturity previously offered as six-month
bills. Dealers, who make primary markets in Government securities and report daily to the Federal Reserve Bank of New York
their positions in and borrowings on such securities, when submitting tenders for customers, must submit a separate tender for
each customer whose net long position in the bill being offered
exceeds $200 million.
A noncompetitive bidder may not have entered into an
agreement, nor make an agreement to purchase or sellar otherwise dispose of any noncompetitive awards of this issue being
auctioned prior to the designated closing time for receipt of
tenders.
Payment for the full par amount of the bills applied for
must accompany all tenders submitted for bills to be maintained
on the book-entry records of the Department of the Treasury.
A,cash adjustment will be made on all accepted tenders for the
d1fference between the par payment submitted and the actual
issue price as determined in the auction.
No deposit ~eed accompany tenders from incorporated banks
~nd,trust compan1es,a~d from responsible and recognized dealers
1n 1nvestment secur1t1es for bills to be maintained on the bookentry records of Federal Reserve Banks and Branches.
8/89

TREASURY'S 13-, 26-, AND 52-WEEK BILL OFFERINGS, Page 3
Public announcement will be made by the Department of the
Treasury of the amount and yield range of accepted bids. Competitive bidders will be advised of the acceptance or rejection
of their tenders. The Secretary of the Treasury expressly
reserves the right to accept or reject any or all tenders, in
whole or in part, and the Secretary's action shall be final.
Subject to these reservations, noncompetitive tenders for each
issue for $1,000,000 or less without stated yield from anyone
bidder will be accepted in full at the weighted average bank
discount rate (in two decimals) of accepted competitive bids
for the respective issues. The calculation of purchase prices
for accepted bids will be carried to three decimal places on the
basis of price per hundred, e.g., 99.923, and the determinations
of the Secretary of the Treasury shall be final.
Settlement for accepted tenders for bills to be maintained
on the book-entry records of Federal Reserve Banks and Branches
must be made or completed at the Federal Reserve Bank or Branch
on the issue date, in cash or other immediately-available funds
or in Treasury bills maturing on that date. Cash adjustments
will be made for differences between the par value of the
maturing bills accepted in exchange and the issue price of the
new bills.
If a bill is purchased at issue, and is held to maturity,
the amount of discount is reportable as ordinary income on the
Federal income tax return of the owner for the year in which
the bill matures. Accrual-basis taxpayers, banks, and other
persons designated in section 1281 of the Internal Revenue Code
must include in income the portion of the discount for the period
during the taxable year such holder held the bill.
If the bill
is sold or otherwise disposed of before maturity, any gain in
excess of the basis is treated as ordinary income.
Department of the Treasury Circulars, Public Debt Series Nos. 26-76, 27-76, and 2-86, as applicable, Treasury's single
bidder guidelines, and this notice prescribe the terms of these
Treasury bills and govern the conditions of their issue. copies
of the circulars, guidelines, and tender forms may be obtained
from any Federal Reserve Bank or Branch, or from the Bureau of
the Public Debt.
8/89

TREASURY NEWS

Department of the Treasury • washington, D.C . • Telephone 5&&-2041

FOR RELEASE AT 12:00 NOON
July 3, 1990

CONTACT:

Office of Financing
202/376-4350

TREASURY TO AUCTION $8,000 MILLION OF 7-YEAR NOTES
The Department of the Treasury will auction $8,000 million
of 7-year notes to refund $4,742 million of 7-year notes maturing
July 15, 1990, and to raise about $3,250 million of new cash. The
public holds $4,742 million of the maturing 7-year notes, including
$352 million currently held by Federal Reserve Banks as agents for
foreign and international monetary authorities.
The $8,000 million is being offered to the public, and any
amounts tendered by Federal Reserve Banks as agents for foreign
and international monetary authorities will be added to that
amount. Tenders for such accounts will be accepted at the average price of accepted competitive tenders.
In addition to the public holdings, Federal Reserve Banks
for their own accounts hold $271 million of the maturing securities that may be refunded by issuing additional amounts of the
new notes at the average price of accepted competitive tenders.
Details about the new security are given in the attached
highlights of the offering and in the official offering circular.
000

Attachment

NB-865

HIGHLIGHTS OF TREASURY
OFFERING TO THE PUBLIC
OF 7-YEAR NOTES
TO BE ISSUED JULY 16, 1990
July 3, 1990
Amount Offered:
To the publ ic ...•........•...... $8,000 million
Description of Security:
Term and type of security ......• 7-year notes
Series and CUSIP designation •... F-1997
(CUSIP No. 912827 ZB 1)
Maturity date .
July 15, 1997
.
To be determined based on
Interest rate . . . .
....
the average of accepted bids
Investment yield ............... . To be determined at auction
Premium or discount •........•... To be determined after auction
Interest payment dates ......... . January 15 and July 15
Minimum denomination available .. $1,000

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

Terms of Sale:
Method of sale . . . . . . . . . . . . . . . . . . yield auction
Competitive tenders ............ . Must be expressed as an
annual yield, with two
decimals, e.g., 7.10%
Noncompetitive tenders
Accepted in full at the average price up to $1,000,000
Accrued interest
payable by investor
None
Payment Terms:
Payment by noninstitutional investors
Deposit guarantee by
designated institutions

Full payment to be
submitted with tender
Acceptable

Key Dates:
Receipt of tenders .............. Wednesday, July 11, 1990,
prior to 1:00 p.m., EDST
Settlement (final payment
due from institutions):
a) funds immediately
available to the Treasury
Monday, July 16, 1990
b) readily-collectible check
Thursday, July 12, 1990

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

FOR RELEASE AT 3:00 PM
July 6, 1990

Contact: Peter Hollenbach
(202) 376-4302

PUBLIC DEBT ANNOUNCES ACTIVITY FOR
SECURITIES IN THE STRIPS PROGRAM FOR JUNE 1990
Treasury's Bureau of the Public Debt announced activity figures for the month of June 1990, of
securities within the Separate Trading of Registered Interest and Principal of Securities program,
(STRIPS).
Dollar Amounts in Thousands
Principal Outstanding
(Eligible Securities)

$429,520,716

Held in Unstripped Form

$327,505,616

Held in Stripped Form

$102,015,100

Reconstituted in June

$4,016,320

The accompanying table gives a breakdown of STRIPS activity by individual loan description.
The balances in this table are subject to audit and subsequent revision. These monthly figures are
included in Table VI of the Monthly Statement of the Public Debt, entitled "Holdings of Treasury
Securities in Stripped Form." These can also be obtained through a recorded message on
(202) 447-9873.

000

PA-I5

TABLE VI-HOLDINGS OF TREASURY SECURITIES IN STRJPPED ~ JUNE 30, 1ItO
(In thouaande)

26

P1~

M&t\.rIty Dale

l.oeI'I o.cnpbon

Amcu1t 0umtandIng

Portion Held In

Total

UnatTipped Fonn

ReOOI~
nu. WonIrI'

Portion Held In
StrIpped Fonn

i

11·518% Note C-1994

11115194

$8.658.5504

$.5.212.154

11.448.400

136.200

11·1/4% Note .... ,995

2115J95

6.933.1161

8.417.381

5111.480

4.000

11·1/4% Note S-1995

5115195

7.127.088

5,419.568

1.707.520

-0-

1().1/2% Note C-1995

8115195 ...

7.955.eol

7,305.901

860.000

1.000

~ 112%

11/15J95

7.318.550

6.478.150

&42.400

-0-

252.100

-0-0-

Note [}.1995

!P18% Note .... ,996

... 2115198

8.575.1e9

8.322.M

7 -318% Nole C-1996

5115196

20.085.843

19.884.843

220.100

. ·1,'4% :,cll" .>-1\196

11/15198 .

20,258.810

19.958.810

300.000

-0-

&-1/2% Nol..... ,997

5115197

9.921,.231

9.849.837

71,100

-0-

8115JV7

9.362.838

9.382.838

-0-

-0-

9.808.329

9.792,329

18,000

-0-

9.159.068

9.158.428

&40

-0-

&-518% Not. S-1997

· ... 11115197

&-718% NOIe C-1997

2115198

&-118% Nola .... ,998
9% Nole S-1998

5I151a8

9.185.387

9.135.387

30.000

-0-

~114'111

8115198

11,342.848

11.214.846

128.000

-0-

9.e02.175

9.898.475

8,400

-0-

9.719.828

9,71',428

3,200

-0-

.5115199 . . . . .

10,047,103

9.178,303

888,800

-0-

.. 8115199 .....

10,183,844

10,081,844

82,000

-0-

.

10.773.960

10,789,160

4.100

-0-

10,873.033

10,513,033

-0-

-0-

10.498.230

-0-

-0-

8,301.808

3.829,808

4,872,000

22.400

4,260,758

1,830,058

2.430,700

-0-

· .... 8115105 .....

9.269,713

8,347,313

e22.400

52.000

· . .. 211S/08 .....

4,755,918

4,755,918

-0-

-0-

.. . . . 11/15114 . ....

8,005,5&4

1,708,3&4

4.2S18.200

112,100

. ....

12.887,799

2,279,198

10,388,000

14.320

7,149,918

1.e97.276

5,152,&40

8.899,859

2.018,858

4,883,200

"".200
-0-

7,288,854

8,121,2504

1,145,800

-0-

.5115116 .....

18,123,551

18,989,951

1,853,800

141,Il00
2118.!«)

NOIe C-1998

.2115199

&-718% Note .... ,999
~ 118%

NOIe S-1999

8% NOla C-1999

11115199 ,

7·"18% NOla [}.1999
&-112% NOI.....2000

...

.

Bono 2005.

Bono 2006
~14

.

11·1104% Bond 2015. ... .
1()'518% Bono 2015
~718'111

Bono 2015

~114%

Bono 2018

7·114% Bond 2016

10,498.230

..

5115105 ....

12% Bond 2005

11-314% Bono

....

· .... 11115104. ..

11·518% Bono 2004

~%

· .... 2115100

,

5115100 ...

&-718% Note S-2000 .

1().3,f4%

..

· ... . 11/15198

&-718% Nole [}.1998

... .

· . . , .2115115

... 8115115 ..
1\/15115 ....
.2115118 ..

7·112%

Bono 2016.

11115118. ...

16,11&4,448

11,387.968

7,4e8,480

~4'111

Bono 2017

5115117

18,194,189

8.1179,809

11.214,580

-0-

8115117

14,016,658

9,03e.058

4,1180,800

112.Il00

&-718% Bono 2017.

8,708,8.38

3,481.03e

50241,800

.,2110

.11115118

9,032.810

1,872,070

7,180,100

I7l.4OO

B-718% Bond 2019

2115119

19.250,7'Q3

8,831,583

12..,8.200

-.-

B-l18% Bond 2019.

.8115119

20.213,832

13,4eo,II52

8,7'22.1180

1.80S.14O

B-112% Bond 2020

.2115120

10.228,868

8,515,288

3,713.800

214,000

8-314% Bond 2020

5115120

10,158.903

10,158,903

-0-

-0-

429,520,718

327,505,818

102.015.100

4,018,320

9--118% Bono 2018
9% Bono 2018

5115118

Total

, Ett8C1fV8 May 1, 1987, secunt>es held In stripped lorm

....

,., ,

war. eligible !of reconstttvtion

to thetr unstripped form.

NOIe On the 4th workday of each month a recording of Table VI will be available atter 3:00 pm. The telephone number is (202) .... 7-8813.
The balances In thiS table are !ubfeCt to audn and aubeequen1 aol~.

TREASURY NEWS

Dellartment of the Treasury • Washington, D.C. • Telephone 5&&-204'
CONTACT: Office of Financing
202/376-4350
FOR IMMEDIATE RELEASE
July 9, 1990
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $9,019 million of i3-week bills and for $9,019 million
of 26-week bills, both to be issued on
July 12, 1990,
were accepted today.
RANGE OF ACCEPTED
COMPETITIVE BIDS:

Low
High
Average

13-week bills
maturing October 11, 1990
Discount Investment
Price
Rate
Rate 11
7.78%
7.81%
7.81%

8.05%
8.08%
8.08%

26-week bills
maturing January 10, 1991
Discount Investment
Rate
Rate 1/
Price

98.033
98.026
98.026

7072%
7.77%
7.75%

8.15%
8.20%
8.18%

96.097
96.072
96.082

Tenders at the high discount rate for the I3-week bills were allotted 86%.
Tenders at the high discount rate for the 26-week bills were allot ted 31%.
TENDERS RECEIVED AND ACCEPTED
(In Thousands)
Received
Received
Acceeted

Location
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
TOTALS
~
Competitive
Noncompetitive
Subtotal, Public

Federal Reserve
Foreign Official
Institutions
TOTALS

$

36,340
19,522,495
23,580
49,850
191,830
62,785
1,597,945
38,775
13,705
35,595
35,935
1,019,595
765,615

$

36,330
7,586,170
23,580
49,850
116,830
58,285
205,445
23,075
13,005
35,595
35,235
69,595
765,615

$

44,485
17,741,010
22,325
38,955
117,160
29,430
1,690,605
33,555
17,790
58,980
38,205
673,585
707,195

AcceEted
$

44,485
7,338,510
22,325
38,955
117,160
29,430
315,605
29,555
17,790
58,980
34,745
264,085
707,195

$23,394,045

$9,018,610

$21,213,280

$9,018,820

$19,542,940
1,532,505
$21,075,445

$5,167,505
1,532,505
$6,700,010

$17,154,395
1,472,655
$18,627,050

$4,959,935
1,472,655
$6,432,590

2,112,630

2,112,630

2,000,000

2,000,000

205,970

205,970

586,230

586,230

$23,394,045

$9,018,610

$21,213,280

$9,018,820

An additional $76,330 thousand of I3-week bills and an additional $221,870
thousand of 26-week bills will be issued to foreign official institutions for
new cash.

l/

Equivalent coupon-issue yield.

NB-866

TREASURY NEWS

Department of the Treasury • washington, D.C . • Telellhone 5 ••-204'
EMBARGOED FOR RELEASE UNTIL DELIVERY
EXPECTED AT 1:30 P.M., EDT
JULY 10, 1990
STATEMENT OF STEVEN W. BROADBENT
DEPUTY ASSISTANT SECRETARY FOR INFORMATION SYSTEMS
U. S. TREASURY DEPARTMENT
BEFORE THE SUBCOMMITTEE ON TRANSPORTATION, AVIATION AND MATERIALS
OF THE COMMITTEE ON SCIENCE, SPACE AND TECHNOLOGY
OF THE HOUSE OF REPRESENTATIVES OF THE UNITED STATES
ON IMPLEMENTATION OF THE COMPUTER SECURITY ACT OF 1987
JULY 10, 1990
Mr. Chairman and Members of the Subcommittee:
I appreciate the opportunity to describe the Treasury
Department's ongoing activities to implement the Computer
Security Act of 1987. Since this is the first opportunity that
Treasury has had to testify on this subject, I'd like to begin by
giving you an overview of the importance of computer security
within the Department of the Treasury.
Treasury is the third largest government department, after
Defense and the Department of Veteran Affairs. with over 150,000
employees and 1,800 field offices in the u.S. and abroad,
information technology plays a vital role throughout the variety
of Treasury's missions.
Treasury's functions range from managing Federal finances,
collecting taxes and duties, and paying all the bills of the
U.S., to investigating and prosecuting counterfeiters, smugglers
(including drug smugglers), and gun violators. Our enforcement
mission extends to protecting executives such as the President
and Vice President and their families, and visiting dignitaries.
The use of information management technologies plays a vital role
in each of these missions. The protection of the sensitive data
within these systems is a cornerstone of our information systems
plans. The emphasis on computer security has grown immensely
within the past decade and will continue to grow as new threats
evolve with new technologies.
TREASURY SECURITY PROGRAM PRIOR TO PL 100-235
Treasury security policies were implemented to comply with OMB
Circulars A-123, A-127, and A-130, so our information systems
security programs were already well underway and provided a solid
base for Computer Security Act implementation. Our security
policies, in the form of several Treasury Directives and one
Treasury Order, issue guidelines and requirements to the bureaus.
1

NB-867

The policies are broadly consistent with the direction of the Act
in most instances.
For example:
o

Treasury Directive (TD) 85-01, Information systems Security,
defines Treasury sensitive information and protection
requirements consistent with the Act.

o

TD 85-02, Automated Information Systems Security and Risk
Management Program, provides minimum baseline security
requirements, and mandates the annual submission of an
inventory of sensitive systems and a plan for security
reviews, risk analyses, and safeguard development by each
bureau.

o

TD 85-04, Controlled Access Protection for Automated Systems
Which Process Sensitive Unclassified Information, requires
the implementation of controlled access protection (C2 level
in Orange Book terminology) on all sensitive Treasury
systems by October 1992.

o

Treasury Order (TO) 106-09, Electronic Funds Transfer Policy
-- Message Authentication and Enhanced Security, requires
proper authentication of EFT transactions.

In addition to Treasury Directives, we annually, through the
information systems planning process, require updated plans,
strategies, and timetables for security program activities and
systems.
IMPLEMENTATION OF THE ACT WITHIN TREASURY
Treasury took a number of steps to ensure compliance with the
Act. We (1) established deadlines for bureau completion and
submission of sensitive system inventories, training plans, and
draft and final security plans, (2) formed a Treasury ADP and
Telecommunications Security Working Group to provide guidance and
develop implementation strategies, (3) obtained agreement with
NIST to allow one of their analysts to work with the IRS to
develop a model security plan, (4) participated in workshops
jointly sponsored by NIST, NSA, and OMB to provide interpretation
and clarification on agency requirements under the Act, (5)
responded to GAO Questionnaires on the CSA implementation
progress at each step during the process, i.e., inventory,
training, and security plan, and (6) conducted Departmental
analysis and oversight of bureau submissions at each stage of
milestone completion, e.g. as necessary, requested bureau
inclusion of systems under development in inventories, required
revision of training plans and/or security plans to more fully
comply with implementation guidance.

2

As a result of this process, in December 1988 Treasury submitted
87 security plans covering over 300 sensitive systems. There
were 87 rather than 300 plans in accordance with OMB, NIST, and
NSA guidance that agencies could aggregate multiple systems under
a few plans to cut down on the volume of plans. The majority of
our plans indicated that adequate security measures and controls
were in place. Other plans reflected systems in the process of
implementing previously planned controls.
LESSONS LEARNED - IMPROVING THE PROCESS
On March 27, 1989, three months after the submission of security
plans to NIST and NSA, Treasury participated with other Federal
agencies in a "Computer Security Planning - Lessons Learned"
workshop sponsored by OMB, NIST, and NSA.
I would like to share
with the Committee the thoughts and recommendations we presented
at that workshop.
o

Aggregation weakened security plans. One of the most
valuable provisions of the law is the requirement to develop
a security plan for every system. The planning guidance
issued by OMB allowed plans to be prepared for either single
systems or groups of like systems. As stated in the GAO
report on the planning process, in some plans that combined
systems, a security control was reported as "in place" for
the entire plan when actually it was in place for only a few
systems. While the grouping of the systems may not provide
management in the oversight agencies with the complete
assurance that bureau management has identified and planned
for the security needs of individual systems, the submission
of an individual plan on each system may overwhelm the
ability of the oversight agencies to review and add value or
better security in this oversight process. An alternative
would be the selection of a limited number of security plans
by OMB or NIST for detailed review. Additional on-site
reviews of computer security plans would continue to be
conducted by the Treasury's Departmental Offices' staff or
the Treasury Inspector General.

o

Building on existing Federal security policies by
incorporating computer Security Act provisions into them,
providing tools and guides to aid agencies in
implementation, and conducting periodic oversight reviews of
selected systems - as opposed to detailed reviews of every
plan - would go a long way in improving the systems security
planning process and increasing our confidence in the
adequacy of controls.

3

since the submission of plans over a year ago, Treasury has been
working toward that end. And we believe that OMB, NIST, and NSA
are headed in the right direction by initiating the on-sight plan
review program as described in OMB's draft planning bulletin
circulated to agencies in January of this year. We look forward
to working with the oversight agencies on this new program and,
as we stated in our comments to OMB, we hope consideration will
be given to the phased or "staggered" implementation of reviews.
Also, we would appreciate as much advance notice of the onset of
reviews as possible.
TREASURY INITIATIVES TO FURTHER IMPLEMENT THE ACT AND IMPROVE
COMPUTER SECURITY SINCE INITIAL CSA IMPLEMENTATION
Treasury has continued to move at full speed to improve the
computer security planning process and the security of our data
and systems. We have taken numerous actions to ensure that
computer security plans are implemented and material weaknesses
corrected.
Actions include:
1.

A Management Review of each Treasury bureau's implementation
of the CSA, including follow-up on implementation of
security plans, was conducted in the summer of 1989.

2.

Compliance Audits of CSA implementation in selected Treasury
bureaus were completed by Treasury's Office of the Inspector
General this year.

3.

We forged a stronger linkage between Federal Managers
Financial Integrity Act (FMFIA) reporting of material
security and control weaknesses with security program
requirements by having inventories of sensitive systems
included in FMFIA reports.

4.

A new Inventory Tracking and Closure System, developed this
year at the direction of the Deputy Treasury Secretary, will
allow the highest levels of senior agency management to
assess the status of corrective actions on security and
control weaknesses.

5.

Treasury's Comptroller continues its close monitoring of the
status of correction of all audit recommendations and
material weaknesses.

6.

As required by the CSA, the above information was reported
to OMB in Treasury's five-year plan of October 1989.

4

Additionally, the following planned and ongoing actions will
ensure continuous compliance with the CSA in Treasury.
1.

New Treasury Directives have been developed regarding
security planning and security awareness and training.
These directives follow through with our earlier comments by
requiring a security plan for each system and discouraging
aggregate plans. We are also requiring annual updating of
Training plans.

2.

We have completed development of a Treasury-specific Risk
Assessment Guideline which provides bureau users with preprinted forms allowing determination of needed controls in
line with Treasury baseline. The guideline also decreases
cost and increases the probability that required risk
analyses will be completed, providing critical information
on which to base the security plan.

3.

We plan to conduct ongoing oversight and monitoring of
bureau compliance and practices. Our oversight actions will
decrease the burden on bureaus through the conduct of
Departmental on-site reviews of selected plans, rather than
submission of plans.

4.

Treasury looks forward to working with OMB, NIST, and NSA in
the new security plan review program.

In general, I would say Treasury's process in implementing the
CSA has been successful. The law has been successful in focusing
management attention on security and the need to communicate a
commitment to all levels.
Follow-up by way of a strong oversight
program is needed to make the law effective in the long run.
This will make initial efforts worth the investment.
RESPONSE TO GAO REPORT
Your invitation letter requested our response to the recent GAO
report regarding CSA implementation.
Basically, the GAO findings
are in line with the feedback we had given to OMB, NIST, and NSA
at their "lessons learned" workshop and to the GAO analysts who
interviewed my staff during the course of the review.
The GAO
report concluded that the agency visit and assistance program
proposed in the draft OMB planning guidance has greater potential
for improving computer security governmentwide.
I very much
agree and, as I indicated earlier in my testimony, we will be
pleased to cooperate with OMB, NIST, and NSA in this review
effort.

5

SCHEDULE OF IMPLEMENTATION OF SECURITY PLANS
Your letter also asked that we include a time schedule that shows
the planned versus actual implementation for the major sensitive
information systems that were discussed in the GAO report.
In the case of the u.S. Customs service, the GAO reviewed the
plan for the Automated Commercial System (ACS).
Of the planned
controls for this system that were scheduled for implementation
during FY 1989, the Risk Assessment was completed on schedule.
The Customs' data center that supported the system was merged
with another data center, with a new facility risk assessment,
and back-up and contingency plan completed in April 1990.
The two remaining controls scheduled for implementation in FY
1990 (Certification/Accredidation and Authorization/Access
Control) have been rescheduled for completion in FY 1991 because
of the identification of vulnerabilities and the need for
additional corrective actions.
With respect to the Internal Revenue service, two systems, the
Tax Processing System and the Compliance Processing System, were
reviewed by GAO.
I should explain that both of these Security
Plans were aggregrate plans covering several systems.
For the
most part, even though the plans reflected that controls were
both "In Place and Planned", the controls for a majority of
systems covered by these plans were already in place at the time
of security plan submissions to NIST and NSA.
The status of implementation of remaining planned controls for
the Tax Processing System is that implementation has been
completed or begun for almost all measures during the period from
December 1988 through April of this year. A Risk Assessment for
a major application in this system (Integrated Management System)
remains to be completed and carries a new target implementation
date of December 1990.
For the Compliance Processing System, planned control measures
were implemented between the period from December 1988 Through
June of this year.
In the area of Security Awareness and Training, the status of
this control measure will always be reflected as "Both In Place
and Planned" because, as required by the law, training is an ongoing activity. This is true for the Customs Service, the
Internal Revenue Service, and all other Treasury bureaus.
That concludes my prepared testimony.
I have with me
representatives from the Internal Revenue Service and the u.S.
Customs Service. We will be pleased to respond to your
questions.
6

TREASURY NEWS

Department of the Treasury • Washington, D.C . • TeleJlhone 5&&-2041
CONTACT: Office of Financing
202/376-4350
FOR RELEASE AT 4:00 P.M.
July 10, 1990
TREASURY'S WEEKLY BILL OFFERING
The Department of the Treasury, by this public notice, invites
tenders for two series of Treasury bills totaling approximately
S18,000 million, to be issued July 19, 1990.
This offering
will provide about $2,100 million of new cash for the Treasury, as
the maturing bills are outstanding in the amount of $15,888 million.
Tenders will be received at Federal Reserve Banks and Branches and
at the Bureau of the Public Debt, Washington, D. C. 20239, prior to
1:00 p.m., Eastern Daylight Saving time, Monday, July 16, 1990.
The two series offered are as follOWS:
91-day bills (to maturity date) for approximately $9,000
million, representing an additional amount of bills dated
April 19, 1990,
and to mature October 18, 1990
(CUSIP No.
912794 VF 8), currently outstanding in the amount of $8,237 million,
the additional and original bills to be freely interchangeable.
182-day bills (to maturity date) for approximately S9,OOO
million, representing an additional amount of bills dated
January 18, 1990,
and to mature January 17, 1991
(CUSIP No.
912794 VR 2), currently outstanding in the amount of S9,554 million,
the additional and original bills to be freely interchangeable.
The bills will be issued on a discount basis under competitive
and noncompetitive bidding, and at maturity their par amount will
be payable without interest.
Both series of bills will be issued
entirely in book-entry form in a minimum amount of S10,000 and in
any higher $5,000 multiple, on the records either of the Federal
Reserve Banks and Branches, or of the Department of the Treasury.
The bills will be issued for cash and in exchange for Treasury
bills maturing July 19, 1990.
Tenders from Federal Reserve
Banks for their own account and as agents for foreign and international monetary authorities will be accepted at the weighted
average bank discount rates of accepted competitive tenders. Additional amounts of the bills may be issued to Federal Reserve Banks,
as agents for foreign and international monetary authorities, to
the extent that the aggregate amount of tenders for such accounts
exceeds the aggregate amount of maturing bills held by them.
Federal
Reserve Banks currently hold S560
million as agents for foreign
and international monetary authorities, and S4,178 million for their
own account. Tenders for bills to be maintained on the book-entry
records of the Department of the Treasury should be submitted on Form
PD 5176-1 (for l3-week series) or Form PO 5176-2 (for 26-week series).
NB-868

TREASURY'S 1,3-, 26-, AND 52-WEEK BILL OFFERINGS, Page 2
Each tender must state the par amount of bills bid for,
which must be a minimum of $10,000. Tenders over $10,000 must
be in multiples of $5,000. competitive tenders must also show
the yield desired, expressed on a bank discount rate basis with
two decimals, e.g., 7.15%. Fractions may not be used. A single
bidder, as defined in Treasury's single bidder guidelines, shall
not submit noncompetitive tenders totaling more than $1,000,000.
Banking institutions and dealers who make primary
markets in Government securities and report daily to the Federal
Reserve Bank of New York their positions in and borrowings on
such securities may submit tenders for account of customers, if
the names of the customers and the amount for each customer are
furnished.
Others are only permitted to submit tenders for their
own account. Each tender must state the amount of any net long
position in the bills being offered if such position is in excess
of $200 million. This information should reflect positions held
as of one-half hour prior to the closing time for receipt of
tenders on the day of the auction. Such positions would include
bills acquired through "when issued" trading, and futures and
forward transactions as well as holdings of outstanding bills
with the same maturity date as the new offering, e.g., bills
with three months to maturity previously offered as six-month
bills. Dealers, who make primary markets in Government securities and report daily to the Federal Reserve Bank of New York
their positions in and borrowings on such securities, when submitting tenders for customers, must submit a separate tender for
each customer whose net long position in the bill being offered
exceeds $200 million.
A noncompetitive bidder may not have entered into an
agreement, nor make an agreement to purchase or sell or otherwise dispose of any noncompetitive awards of this issue being
auctioned prior to the designated closing time for receipt of
tenders.
Payment for the full par amount of the bills applied for
must accompany all tenders submitted for bills to be maintained
on the book-entry records of the Department of the Treasury.
A cash adjustment will be made on all accepted tenders for the
difference between the par payment submitted and the actual
issue price as determined in the auction.
No deposit need accompany tenders from incorporated banks
and trust companies and from responsible and recognized dealers
in investment securities for bills to be maintained on the bookentry records of Federal Reserve Banks and Branches.
8/89

TREASURY'S 13-, 26-, AND 52-WEEK BILL OFFERINGS, Page 3
Public announcement will be made by the Department of the
Treasury of the amount and yield range of accepted bids.
Competitive bidders will be advised of the acceptance or rejection
of their tenders. The Secretary of the Treasury expressly
reserves the right to accept or reject any or all tenders, in
whole or in part, and the Secretary's action shall be final.
Subject to these reservations, noncompetitive tenders for each
issue for $1,000,000 or less without stated yield from anyone
bidder will be accepted in full at the weighted average bank
discount rate (in two decimals) of accepted competitive bids
for the respective issues. The calculation of purchase prices
for accepted bids will be carried to three decimal places on the
basis of price per hundred, e.g., 99.923, and the determinations
of the Secretary of the Treasury shall be final.
Settlement for accepted tenders for bills to be maintained
on the book-entry records of Federal Reserve Banks and Branches
must be made or completed at the Federal Reserve Bank or Branch
on the issue date, in cash or other immediately-available funds
or in Treasury bills maturing on that date.
Cash adjustments
will be made for differences between the par value of the
maturing bills accepted in exchange and the issue price of the
new bills.
If a bill is purchased at issue, and is held to maturity,
the amount of discount is reportable as ordinary income on the
Federal income tax return of the owner for the year in which
the bill matures. Accrual-basis taxpayers, banks, and other
persons designated in section 1281 of the Internal Revenue Code
must include in income the portion of the discount for the period
during the taxable year such holder held the bill.
If the bill
is sold or otherwise disposed of before maturity, any gain in
excess of the basis is treated as ordinary income.
Department of the Treasury Circulars, Public Debt Series Nos. 26-76, 27-76, and 2-86, as applicable, Treasury's single
bidder guidelines, and this notice prescribe the terms of these
Treasury bills and govern the conditions of their issue. Copies
of the circulars, guidelines, and tender forms may be obtained
from any Federal Reserve Bank or Branch, or from the Bureau of
the Public Debt.
8/89

OVERSIGHT BOARD

RESOLUTION FUNDING CORPORATION
CONTACT:

FOR IMMEDIATE RELEASE
July 10, 1990
(OB 90-38)

Diane Casey
202-786-9672

REFCORP ANNOUNCES RESULTS OF AUCTION OF 30-YEAR BONDS
The Resolution Funding Corporation has accepted $5,026 million of
$15,477 million of tenders received from the public for the 30-year
bonds, Series A-2020 auctioned today.l/ The bonds will be issued
July 17, 1990, and mature July 15, 2020.
The interest rate on the bonds will be 8 7/8%. The range of
accepted competitive bids, and the corresponding prices at the 8 7/8%
interest rate are as follows:
Price 2i

yield
Low
High
Average

99.530
99.427
99.427

8.92%
8.93%
8.93%

Tenders at the high yield were allotted 38%.
TENDERS RECEIVED AND ACCEPTED (In Thousands)
Location
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
st. Louis
Minneapolis
Kansas city
Dallas
San Francisco
Totals

Received
$

150
14,658,384
10

Accepted
$

150
4,866,624
10

10,500

4,380

463,000
5,000

126,760
5,000

2,586

2,086

337,030

21,030

$15,476,660

$5,026,040

The $5,026 million of accepted tenders includes $208 million of
noncompetitive tenders.

1/

The minimum par amount required to strip the REFCORP bonds is
$1,600,000. Larger amounts must be in multiples of that amount.

1I

In addition to the auction price, accrued interest of $0.48234
per $1,000 for July 15, 1990, to July 17, 1990, must be paid.

TREASURY NEWS

Dellartment of the Treasury • Washington, D.C. • Telellhone 5 ••. 20.1

FOR RELEASE UPON DELIVERY
Expected at 9:30 a.m.
July 11, 1990
TESTIMONY OF THE HONORABLE
ROBERT R. GLAUBER
UNDER SECRETARY OF THE TREASURY FOR FINANCE
BEFORE THE COMMITTEE ON WAYS AND MEANS
OF THE HOUSE OF REPRESENTATIVES

I appreciate the opportunity to appear before you today to
advise you of the need for Congressional action to increase the
debt limit before the scheduled August Congressional recess.

DEBT LIMIT

Treasury's current estimates show that the permanent ceiling
of

$3,122.7

billion will

be

sufficient

only

until

mid-August.

without an increase in the debt limit, it appears likely that the
Treasury will run out of cash and borrowing authority and default
on the Government's obligations in mid-August.

It is highly likely

that default would occur before Congress returns in September.

Our estimates are subject to a greater-than-usual degree of
uncertainty, because the Resolution Trust corporation (RTC), which
borrows from the Federal Financing Bank (FFB) , faces difficulty in
predicting the timing and level of its need for working capital

NB-869

2

funds.

A significant near-term increase in RTC spending above the

current estimate could accelerate the need for an increase in the
debt limit to early August in order to invest the social security
trust funds fully.

As you know, the limit usually is raised to a new permanent
level sufficient to fund the Government's needs for the coming
fiscal year.

We estimate that a debt limit of $3,509 billion will

be sufficient to last through FY 1991.

Since the debt subject to

limit is expected to hit a peak level on September 2, 1991, when
the normalized tax transfer to the social security trust funds is
invested, this figure includes a $30 billion allowance above the
$3,479 billion of debt subject to limit estimated by OMB in the
Mid-Session Review.

In the spirit of the longer-term horizon for reducing Federal
budget deficits in bipartisan negotiations on the budget,

it is

appropriate at this time to consider increasing the permanent debt
limit in an amount that is sufficient for the next several fiscal
years.

In this connection, the Administration's current estimates

indicate a

debt limit need of $3,811 billion through FY 1992,

including an allowance of $35 billion for social security trust
fund

investments

in

early

September

1992,

and

$4,053

billion

through FY 1993, including an allowance of $40 billion for trust
fund investments in early September 1993.

3

These figures include the revisions of the RTC's financing
needs

discussed

below,

and

they

are

consistent with the Mid-

Session Review of the Budget for FY 1991, which is due for
release by OMB on July 16.

Since the Mid-Session Review will

not be released until next week, I am not able to provide more
detailed information on the specific receipts and outlay
estimates that underlie the debt limit figures.

I should note,

however, that RTC outlays, which are subject to sUbstantial
forecast uncertainty, playa large role in the overall outlay
figures.

Depending on actual RTC experience, we could reach the

debt limit before or after the end of the fiscal years indicated.

If Congress were to leave for its August recess -- scheduled
for August 6 through september 4 -- without increasing the debt
limit, the Treasury would likely default on $20 billion of notes
maturing on August 15 and be unable to make interest payments
totaling about $21 billion that day.

Also the united states most

likely could not honor, on August 31, $3 billion of military
retirement and salary payments or payments totaling over $11
billion to social security and supplemental security income
recipients, railroad retirees and veterans.

Defaulting on obligations already incurred is very different
from halting operations of the Government where spending
authority is allowed to lapse, such as occurs when appropriations
are delayed.

Once an obligation is incurred, it must be paid.

4

Finally, default would have very serious adverse consequences
on domestic and international confidence and trust in the united
States.

RTC CLEAN UP COSTS

I

want to turn now to the financing needs of the RTC,

in

response to questions that have been asked by this committee.
We have attached for your information Secretary Brady's June 14
testimony before the House Committee on Banking, Finance, and Urban
Affairs, which gives a more complete response to the questions you
asked regarding cost of the thrift clean up.

Original Cost Estimates
The $50 billion provided to the RTC for thrift losses in the
Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA)

was based on the most credible estimates at the time,

prepared by the Federal Deposit Insurance Corporation, the Federal
Home Loan Bank Board, and the General Accounting Office.

All three

of these agencies estimated that $50 billion would be sufficient
to meet the RTC's needs.

However, as we said during the legislative process, the level
of resources needed, no matter how thoroughly researched or widely
agreed upon,

was still based only on estimates.

incl uded the

level

of

interest

rates

and the

Uncertainties
strength of the

5

economy,

the timing and amount of asset sales,

as well as many

other factors that could have a significant impact on the size of
the problem.

Revised Estimates
Actual experience over the past ten months indicates that
RTC

losses have

increased because:

the

losses

in

individual

thrifts are larger than expected; marginal thrifts are likely to
fail sooner than expected (becoming the responsibility of the RTC,
not the Savings Association Insurance Fund); and the total number
of projected thrift failures has increased.

A

number

of

factors

have

contributed

to

these

higher

projections:

o

The population of thrifts which has become the responsibility
of

the

RTC

anticipated.

has

been

in

worse

financial

condition

than

until the RTC was able to get inside these

institutions, it could not make an effective evaluation.

o

There has been a general decline

in regional real

estate

markets, particularly commercial real estate, in many parts
of

the

country.

Unfortunately,

RTC

thrifts'

assets

are

heavily concentrated in real estate, whether through direct
investments, foreclosed property, or real estate loans.

6

Interest rates, which are now higher than we had projected,

o

have

increased

operating

losses

for

thrifts

in

conservatorships and caused softer real estate markets.

o

There have been unexpected losses ln below-investment grade
bonds, sometimes referred to as IIhigh yield ll or "junk"
bonds -- RTC has $4 billion of junk bonds in its portfolio.

Again, all of these factors have produced not only higher than
expected losses, but also an increase in the population of savings
and loans that will require attention.

When Will More Funding Be Needed?
Even though the RTC has spent only about half of the $50
billion provided in FIRREA to cover losses,

it could,

with an

aggressive schedule of case resolutions, run out of loss funds by
the end of this calendar year.
important constraint
included

in

FIRREA.

in the
This

However,

form
is

the

the RTC faces another

of the obligation limitation
provision

which

limits

RTC

obligations -- most notably, working capital borrowings -- to the
amount of unused REFCORP authority, cash on hand, and 85 percent
of the fair market value of assets held by the RTC.

Based on its current method of calculating the working capital
obligation limitation, the RTC will run up against that limitation
sooner than it uses the $50 billion to cover losses -- almost

7

certainly not later than early in the fourth calendar quarter of
this year.

If the RTC cannot raise additional working capital and

the cost of acquiring assets exceeds the amount generated from
sales, it cannot proceed with resolutions.

To assure that the pace

of resolutions is not constrained by the availability of funds, and
that the cost to the taxpayer is not increased by the consequent
delay,

it is essential that the RTC receive increased funding by

the end of the third quarter -- by September 30, 1990.

How Much More will Be Needed?
There are too many variables to pick a single number -- number
of cases, losses on assets, interest rates, and market conditions,
among others.

The most responsible course,

we believe,

is to

consider a range of possible outcomes.

Taking into account all of the uncertainty and all of the
variables,

it appears that the cost,

in present value terms,

of

resolving institutions which are likely to come under the control
of the RTC will be in the approximate range of $90 billion to $130
billion.

Any attempt to convert these present value costs to yearly
expenditures must incorporate an additional factor,
which the RTC can resolve institutions.

the pace at

This greatly affects the

amount of RTC outlays on a yearly basis, but has relatively little
impact on the overall size of the loss.

A representative range of

8

the resources the RTC may need in fiscal year 1991 to cover losses
should be from slightly over $30 billion to slightly over $50
billion.

We estimate that working capital needs would be from $20

to $40 billion.

How Should Additional Funds Be Raised?
The Federal Home Loan Bank System simply does not have the
financial capacity to back substantially more Resolution Funding
Corporation (REFCORP) borrowing than was provided for in FIRREA.
Additional resources will have to come from Treasury funds.

Form of Additional Financing
There appear to be two basic choices for how the funds should
ei ther through appropriations to RTC of specific

be prov ided:

amounts from time to time to cover some or all remaining losses,
or

through

an

appropriation

necessary to complete the job.

to

the

RTC

of

such

sums

as

are

No matter which way the funds are

provided, the cost of resolving the savings and loan crisis will
not change.

Moreover,

it must be emphasized that this is not a

discretionary activity; the Government's deposit guarantee must be
fulfilled.
There

1S

precedent

in

the

Federal

budget

indefinite authority to fund mandatory activities.

for

providing

In addition,

Congress will have plenty of oversight regarding the RTC's use of
the funds provided,

since the Oversight Board and the RTC must

report to Congress on a regular basis.

9

Mr. Chairman, this completes my formal statement.
happy to answer the Committee's questions.

I will be

~

i~~!

'*i
~5

OVERSIGHT BOARD
RESOLl" 0 ' TReST CORPORA nol"i
WashiDltoD. D.C. lOl31

STATEMENT OF SECRETARY NICHOLAS F. BRADY
ON BEHALF OF THE
OVERSIGHT BOARD
OF THE RESOLUTION TRUST CORPORATION
BEFORE THE
HOUSE COMMITTEE ON BANKING, FINANCE, AND t1RBAN AFFAIRS

JONE 14, 1990

Mr. Chairman, members of the Committee, we are pleased to
have this opportunity to present our views on the progress to
date under the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA) and to discuss the outlook for
the months to come.
I address the Committee this morning in my capacity as
Chairman of the OVersight Board and am accompanied by three other
members of the Board:
Robert Larson.

Chairman Greenspan, Secretary Kemp and

OUr fifth member, Philip Jackson, Jr., is out of

the country and unable to join us today.
We are also accompanied by William Taylor, who has served
for the last several months as the Acting President of the
OVersight Board, and Peter Monroe, the incoming President.
Speaking for a moment for the three charter members of the
Board, let me tell you how pleased we are to have been joined by
two such able individuals as Philip Jackson and Bob Larson.

We

are all grateful for their willingness to sign on and of course
for their experience and judgment.
This testimony will cover our efforts since the enactment of
FIRREA ten months ago.

We are dealing with a moving target, made

qreatly more expensive by a weakening real estate market and
constantly cbanqinq economic conditions.

It is not susceptible

to easy answera or aimple aolutiona. The problema are complex and
maaaive -- aa we knew they were a year ago aa we worked together
to adopt legialation.

It anything, the experience of ten months

haa revealed that the task i. even more formidable than any of us
then imaqined.

As we proceed, we do so under three principles which have
guided us from the start:
First, we will make sure that the millions of men and
women who put their life savings in savings and loan
institutions are protected to the full extent of their
federal deposit insurance.
Second, we will do all within our power to do the job
at the least cost to the taxpayer.
--

Third, we will aggressively pursue and prosecute the
crooks and fraudulent operators who helped create the
S , L problem.

It is important to bear in mind that money spent on the
savings and loan crisis is spent with a single purpose in mind.
The United states government made a promise to millions of
Americans.

We promised to protect their savings if deposited in

a federally-insured savings and loan.

Now we make good on that

promise.
We are not using taxpayer dollars to bailout any thrift
institution, their owners, or the aavings and loan industry in
general.

We are living up to the government's end of the

agreement represented by federal deposit insurance.
There are many who are impatient to wish these unpleasant
probl . .s behind us.

We must remember, however, that it took over

a decade for the thrift problem to beco.e so costly and so
difficult to fix.

The enactment of FIRREA less than a year ago

vas only the beginning of the solution: we atill have a long way
2

to go before we reach the end.
There are no magic solutions.

We cannot predict with

certainty the amount of money or the amount of time it will take
to finally resolve this problem.

What we can promise is to seek

sound advice, use common sense, and see that the problem is
effectively managed.
Our statement first takes a brief look back at the
circumstances which led up to the enactment ot FIRREA.

It then

provides a report on progress from last August to the present,
covering the following areas:

case resolutions: assets acquired

and sold; enforcement efforts: affordable housing: and minority
outreach.

We address in this progress report several issues

raised by the Committee in addition to housing and minority
programs:

the conservatorship program: quarterly operating

plans: status of the accelerated resolution and clean sweep
programs: compliance with the Community Reinvestment Act.
Finally, we look ahead to consider the question ot resources.
aetore we do .0, we .hould tace squarely the tact that the
real estate market in a number ot area. in

~~e

u.s.

i. in a

weakened state and has become particularly so in the last year.
Thi. atteeta every a.pect of the prOblem we face, especially the
job of e.timating the size of the problem.

The condition of the

real e.tate market aftect. the number ot in.titution. which tail,
the value of their a.set., the .peed at which a ••et. can be .old,
and thu., the ultimate 10•••

3

FIRREA requires that we estimate the remaining exposure of
the U.S. government from institutions which will come under the
control of the RTC.

We have attempted to do so in this

statement, but note that such estimates are highly uncertain
because they require market predictions, which are themselves
highly uncertain.

For that reason, no one should assume that the

estimates presented today will not change.

They will.

A LOOK BACK

The problems we are wrestling with today have roots which
reach back over many years.

They extend back to events of more

than a decad., as the thrift industry struggled to cope with
economic adversity and fundamental changes in financial markets;
to broadened powers, coupled with insufficient policing by
government regulators; to capital requirements which resulted in
too little of thrift owners' money being at risk; to problems in
real .stat. and the junk bond markets; and, in many instances, to
mismanagement and misdeeds.

Many ot these problems tlow together

and teed on one another.
Th. .aving. and loan problem was there to greet Pr •• ident
Bush when he took office in January 1989 and he wasted no time in
re.ponding.

Le •• than a month atter taking the oath of office,

the Pre.ident came forward with a plan and made it one of hi.
highe.t prioriti •• to enact it into law.
You in the Congr... and we in the Admini.tration worked
together la.t year a. architect. of a plan to repair the damage
4

and reform the system.

Together we devised a plan to resolve the

savings and loan crisis and to help prevent it from happening
again.

While comparisons with other government rescues are

inevitable, this is not a bailout.
shareholders.

We are not bailing out

We are not bailing out management.

this to preserve institutions.

We are not in

In fact, many will be lost.

It

bears repeating that monies spent are to protect depositors.
It was just over a year ago that Congress took up
consideration of FIRREA.

Under your leadership, Mr. Chairman,

and that of your Committee, the House of Representatives produced
a bill in a timely manner.

While preserving the essence of the

Administration's plan, you added your imprint in areas such as
capital requirements; affordable housing; the tightening of the
qualified thrift lender test: purchased mortgage servicing
rights: curtailing "junk" bond investments: open thrift
assistance; the creation of the Federal Housing Finance Board;
and the disclosure of community Reinvestment Act ratings.
With the enactment of FIRREA on August 9, 1989, the
machinery was put in place.

& PllOGUa8

oPOa.,

Onder the provisions of FIRREA, the OVersight Board must
report on case resolutions, costs incurred, and asset sales
durinq the period from October 1, 1989 through March 31, 1990,
alonq with providinq certain other financial information.
reporting on the .ix-month period a. required, we bave not
5

While

limited ourselves to that and, where possible, provide in this
statement information on more recent RTC activities.
As we review the progress to date, it is important to
remember that a key purpose of FIRREA is to provide the money and
mechanisms to separate out insolvent and failing thrifts, so that
the industry which remains can compete successfully and safely in
the financial marketplace.
The evidence is that FIRREA is working.

eased on fourth

quarter 1989 fiqures, OTS has analyzed the thrifts which remain
after removing the institutions already resolved, those currently
at the RTC tor resolution, and those likely to be sent to the RTC
in the near future.

The industry which remain. i. profitable,

has on average more than three percent tangible capital, and is
growing by adding deposits.
Case resolutions
When the RTC started its work on August 9, 1989 there were
262 institutions in conservatorship.

Since August, the RTC has

resolved 148 cases (including 28 between October 1 and March 31),
while adding 181 institutions to the easeload.

That left the

RTC, .s of June 8, 1990, in control of 295 conservatorships.
While there h.. been a great de.l of discu.sion about the
RTC'. relatively .low start in case resolution., progre •• in
recent .onth. has been substantial.

The RTC has re.olved nearly

100 ea.e. in the la.t eleven weeka -- by any .ea.ure, a

tremendous accompliahment.

6

To the extent that it took longer for the process to get
under way than some expected or hoped, it was not for lack of
resources.

Immediately after FIRREA was signed, $20 billion was

provided to the RTC in appropriated funds and industry
contributions.
$13 billion.

The Resolution Funding Corporation has provided
The OVersight Board acted in February to allow the

RTC to borrow working capital from the Federal Financing Bank.
The availability of those resources has ensured that no
disruption has occurred for lack of resources.
One factor that certainly affected the pace of resolutions
during the first several months is that it takes time to build an
organization, particularly one so large and with so difficult a
task as the RTC.

I am surprised by those who so readily dismiss

the difficulties of creating in just ten months an organization
that is roughly the size of Citicorp.
RTC's concern about a pile-up of retained assets of failed
thrifts seems to have been another factor affecting the pace of
resolution..

Because of the difficulty of manaqing and disposing

of as.et., the RTC will attempt to pass as many assets as
possible to private sector acquirers.

We certainly share that

goal, but bave tended to support a quicker pace of resolutions,
while moving on a .eparat. track to return as •• t. to the private
••ctor.
At the reque.t ot the RTC, the oversight Board in February
approved a policy e.tabli.hing a general limit of twelve months
on the amount of time that an acquirer baa to decide to put
7

assets back to the RTC.

This policy will give acquirers adequate

time to get to review the assets of an institution without a
lengthy period of review preceding the acquisition.

The hope is

that this will not only quicken the pace but also increase the
•

likelihood that acquirers will take on assets.
The major problem faced by the RTC in trying to resolve
cases, however, is that there simply have not been many
interested buyers for the assets taken over, especially for whole
thrifts.
Quarterly operatiDq plan..

With policies in place and the

lessons of nearly eight months of operations, the RTC in March
laid out an ambitious schedule of case resolution. for the third
quarter of fiscal year 1990.

The plan calls for re.olving 141

institutions with asset. totalling nearly $50 billion between
April 1 and June 30, 1990.
The OVersight Board endorsed the third quarter plan and
approved the funds necessary to carry it out.

The plan approved

by the Oversight Board provides for up to $51.6 billion in
spending on ca.e resolutions during the quarter, of which $19.1
billion represents estimated net 10 •••• and $32.5 billion the
recovery value of receivership assets.
Aa of June 8, the RTC had resolved 9 6 of the 141

institutions with assets of $21.2 billion.

Although a

substantial amount of work remains to be done, we are advised by
the RTC that they expect to hit the target of 141 resolutions by
the end of the aonth.
8

Whatever the final number, the RTC deserves enormous credit
for its accomplishments during the third quarter.

This

represents a significant achievement by historical standards.
Of the 141 institutions targeted for resolution during the
current quarter, the RTC identified about 50 which would be
resolved either through insured deposit transfers or payouts.
This part ot the plan was labeled "Operation Clean Sweep" (though
many people use the term to describe the entire third quarter
program).

We have encouraged the RTC over the past several

months to place greater reliance on liquidations and were
theretore pleased to see the emphasis on this method ot
resolution in the third quarter.

ot the 96 third quarter resolutions through June 8, there
have been 38 purchase and assumption transactions involving
institutions with assets ot $15.0 billion: 46 insured deposit
transters involving institutions with as ••t. ot $5.2 billion and
12 payouts involving institutions with asseta ot $1.0 billion.
The oversight Board is involved in ongoing discussions with
the RTC about proj.ction. tor ca •• r.solution. during the
quarterly period. b.ginning on July 1 and on October 1 of 1990.
How.v.r, no operatinq plan has y.t b••n pr•••nt.d or adopted for
tho •• quart.ra.

Sp.nding requirement. will be driv.n by the pace

ot r •• olutioft8, which w. would d•• crib. in t.rms of a •••t values
rath.r than the number of institution..

It ..... r.a.onabl. to

.xpect that the RTC could re.olve in.titution. with a •••t.
ranginq from $20 billion to $40 billion per quart.r.
9

We recognize that both the congress and the Administration
have a need for information about RTC spending plans.

We hope to

move toward planning for six-month periods and will work with the
RTC to achieve that end.
Con.ervatorship program.
thrifts in conservatorship.

As of June 8, 1990, there were 295
It is impossible to say how many

more will enter the program.

The Office of Thrift supervision

COTS) has identified 299 institutions which, as of April 27,
1990, were likely candidates for resolution and another 315 for

which the future is uncertain.

The number of failing thrifts

which ultimately enter conservatorship alao depends on the number
that receive some form of expedited resolution, bypassing
conservatorship altogether.
The benefit of placing an institution in conservatorship is
that it allows the government to stem losses and bring to a halt
practices which may have contributed to the insolvency.

Once an

institution has been taken over, the RTC reduces it. risk
exposure and prepares it for resolution.

Thi. include. reducing

the asset side of the balance sheet through the packaging or
securitization and sale of financial as.ets.
The probl . . vith placing an institution in conservatorship
particularly for an extended period of tim. -- i. that it
generally 1.a4. to • further erosion in franchis. valu..

For

example, the trained staff of a thrift in con•• rvatorship may
vorry that it vill be liquidated and opt to take job• • l ••where.

10

We recognize that the General Accounting Office has raised
concerns about the training and turnover of managing agents.
Given the size and the unprecedented nature of the
conservatorship program, it should come as no surprise that there
may be operating difficulties in the field.

The Oversight Board

intends to monitor the situation and provide policy quidance as
warranted.
Accelerated resolutions.

We are concerned about the effect

of the conservatorship program

in essence, the government

warehousing of private sector assets

on franchise values.

The

RTC ahares these concerns and therefore has developed the idea of
the "accelerated resolution program."
Onder the accelerated resolution program, an institution
will be marketed betore it is actually placed in conservatorship
by the Office ot Thritt supervision.

The RTC, in cooperation

with the OTS, is in the process of developing a pilot project to
test this torm ot resolution.

The OVersight Board will monitor

the development of this program to ensure that it operates in a
manner consistent with the requirements ot F1RREA and the
strategic Plan.
While the details ot the accelerated resolution program
remain to be worked out, we support the goal ot trying to deal
with an institution when resolution costs the least.

At the same

time, however, we will continue to focus on the n.ed to resolve
the existing conservatorship caseload.

11

community obliqations.

Enforcing an acquirer's obligations

to its community and encouraging it to meet such obligations are
essentially functions of the financial supervisory agency which
regulates an acquirer.

In enacting FIRREA, congress recognized

that such supervisory functions would not be exercised by the
RTC:
"Neither the OVersight Board nor the RTC, whether in its
corporate capacity or in its capacity as conservator or
receiver, act as a supervisor or regulator of insured
financial institutions.

The appropriate Federal bank

regulatory agency retains such status for all purpo •••• "
Onder the Community Reinvestment Act, the community credit
record of an institution that applies to acquire an RTC
institution will be evaluated by the Federal financial
.upervisory authority that created .uch a record a. part of its
examination of the acquirer.

It i. the responsibility of the

.upervisor to review a potential acquirer'. community
reinve.tment record in con.idering the institution'. application
to acquire a failing thrift.
Assets acquired and lold
There are two group. of a •• et. under the control of the RTC:
tho.e in conservator.hip and tho.e in receiver.hip.

As of March

31, 1990, there were 350 in.titution. in con.ervator.hip with
gro •• a ••et., in book value, of $159.9 billion (ba.ed on December
31, 1989 financial data).

The compo.ition of a •• et. held at that

time was a. follow.:
12

Table 1
CONSERVATORSHIP ASSETS
350 Conservatorships as of March 31, 1990

Book Value of Gross Assets
billions)

($

Cash and securities
Mortgages
Other loans
Real estate owned
Other assets

$41.6
$80.4
$13.5
$13.8
$10.6

Total

$159.9

26'
50'

8'9'
7'

100'

The composition of assets under the control of RTC
receiverships as of March 31, 1990 was as follows:
Table 2
52

RECEIVERSHIP ASSETS
Receiverships as of March 31, 1990
Book Value of Gross Asset.
($ billions)

Cash and securities
Mortgages
Other loans
Real estate owned
Other assets

$
$
$
$
$

Total

$13.3

1.7
7.1
0.9
2.9

0.7
100'

The largest part ot the RTC's ass.t disposition efforts has
been sale. troa conservatorships.

This follows tro. the guidance

provided by th. Oversight Board in the Strategic Plan, which
provides ato the extent teasible and cost effective, the asset
side of the balance sheet rot thrifts in conservatorship] should
be reduced through the packaging or .ecuritization and .ale of

13

financial assets."
While the RTC has compiled a substantial record on sales
from conservatorships, there has been less progress in disposing
of receivership assets.

To some extent, this is understandable,

because the receivership assets are the most troubled.

The

OVersight Board and the RTC, however, are anxious to establish a
record ot steady and solid progress in the .ale of assets.
Table 3 shows the level ot sale. and other collections on
assets held or managed by the RTC through March 31, 1990.

It

shows that, through March 31, 1990, the RTC has reduced the
volume of asset. under its control

includinq both

conservatorships and receiverships -- by $41.9 billion through
March 31, 1990.

w. recognize that the most marketable a.sets are

sold first, but ve are nonetheless pleas.d to se. this l.vel ot
reduction.
Of the $173.2 billion in .s •• t. under the control ot the RTC
at the end ot March (both in conservatorships and rec.iver.hips),
$16.7 billion or t.n perc.nt va. owned r.al .stat..

It is too

.arly in the proc••• to a ••••• the impact of RTC r.al ••tat.
s.l •• on local mark.ts.
It bacoaa. critically important to achi.ve gr.at.r progr •••
in the ar.. of as ••t .ale. as the number of r.solution.
incr.a....

At the and of the •• cond quart.r of the fi.cal y.ar,

the •• timat.d fair .arket value of r.ceiver.hip a •••t. totalled
about $7 billion.

Ond.r the third quart.r oparatin9 plan, that

total could incr•••••• high •• $39.5 billion.
14

Table 3

BaIancII of All III Held or Managed by RTC from Inception through March 31, 1990
402 Institutions •

($"'''''.)
ReeoIutIon & RecaIverIhIp
Reducdona

durtng

eon-.torlhlp

A8IIt

BegII.....
Con .. ,.·

I ..... aM.........-

Other
Changea

-7.2
-2.1
....0
-0.1
-G.I

-1.1
0.7
S.2
2.4
-4.1

Payment8

Paued
to

•

PlUClllda

~

I .......
oe..,-

102.1
17.1
10.1
11.3
17.7

a...,.
OM....
CUll

AI •••

OI.-AII . .

-2.1
-0.4
-14.1
-1.1
-0.1

-3.'

-G.I
-1.0
-G.O
-G.I

PrtildpaI

Other

CoI1ect-

Changes

Ions

(Net)

-G.2
-G.1
-G. 1
-G. 1
-G.O

I

0.0
0.2
1.1
-0.0
-0.0

81.5
1.....

43.3 ••
18.1
11.3
->,>

• AI ..... 11: 110 CcIn ••1W1OfINpI

IIR..........

•• a...- lfto..lA........... ce.ve on. 01 _ _ ......,.,.. ...... and equity "'ltInenra

.....,cuII avalable . . . . ..,.....,.

.......................".1.1 ...............
...................1IdL

Balence

a. March 3 ••
1990

~"·""i73.~ ~

We must take advantage of the opportunity to dispose quickly
of assets which have a ready market, such as single-family
mortgages.

With the encouragement of the oversight Board, the

RTC recently adopted a policy for providing representations and
warranties, as are customary in the marketplace.
Wa also support the RTC in the procedures recently adopted
for determining the market value of assets and establishing
prices for sales by auction.

We believe that the RTC Board has

taken an initial step toward dealing with appraised values which
may in some cases overstate market value. and so communicated
that to the RTC during its deliberations.

We find the approach

which they have taken to be responsible.
Last month, the members of the OVersight Board met with
Chairman Seidman to discuss ways to expedite asset disposition.
Enforcement efforts
We must vigorously pursue tho.e who •• criminal and
fraudulent activities helped create the current situation.

As we

obs.rve the failed institution. and contemplate the mounting
10•••• , we continue to be convinced that the governm.nt must
provide the resource. that are needed to make certain that those
who have abuaad in.ured in.titution. know the effect. of justice.
The RTC bas e.tablished an Office of Investigation. in
Wa.hington and has teams of investigator. throughout

the

country.

The RTC'. inve.tigations staff i. planned to reach 300 by year
end.

The.e investigator. will help to identify negligent and

reckle •• mi.management, fraud, and criminal conduct that
16

contributed to thrift insOlvencies.

The RTC·s investigators will

be involved throughout civil litigation proceedings and also will
assist the FBI and the U.S. Attorneys in criminal prosecutions.
Thrift requlators and institutions have made over 17,000
criminal referrals in the last three years.

OVer the same

period, OTS and its predecessors required 664 institutions to
enter into binding agreements terminating unsafe and unsound
practices; removed over 150 senior officers and directors from
thrifts and forbade them ever again to be employed by an insured
thrift institution; and issued 111 cease and desist orders, to
stop unsafe and unsound practices and to require restitution.

In

addition, there are over 1,000 civil law suits seeking to recover
billions of dollars from the former directors, officers and
prof.ssionals -- including accountants and lawyers.
Criminal referrals have already resulted in prosecutions and
convictions.
dr~matic
I

The Woody Lemons case in Dallas, Texas provides a

recent example.

Lemons, the former Chairman and Chief

Executive Officer of Vernon savings and Loan in Vernon, Texas,
was sentenced to spend 30 years in prison, following his
conviction tor an elaborate bank fraud schame, misapplication of
Vernon'. funda, and bank bribery.

Aa of . .y 11, 1990, the Dallas Bank Fraud Task Force, in
which ors and RTC personnel are working closely with the
Department of Justice, has charged 70 defendants and obtained 49
convictiona.

That Task Force also has succe.ded in having the

court. impose criminal restitution orders of over $16 million.
17

Despite the extent of our present enforcement activities,
the government needs to do more.

To accomplish this goal, the

Attorney General and I are working to see that financial
misconduct is punished.

We are establishing priorities for the

major criminal referrals and civil cases of all financial
regulatory agencies and are working with the Department of
Justice to see that the most important criminal cases receive the
priority attention they deserve.
Affordable housing
Since we last appeared before the committee, the RTC has
proposed and the oversight Board has approved an interim rule for
the Affordable Housing Disposition Program.

This rule implements

the provisions of FIRREA requiring the RTC to offer certain
residential properties to qualified purchasers for a gO-day
marketing period.

The interim rule was published in the Federal

Register on April 16, 1990, and the 60-day comment period is over
tomorrow.
The development of this rule was a collaborative process
between the RTC and the OVersight Board, as has been the
development of a guideline for the disposition of properties
having no reasonable recovery value.

The guid.line. will provide

for the conveyance of .uch prop.rtie. to be us.d as sh.lt.r for
the homel •• s, housing tor lower-income tamili •• and other public

u ••••
In March, the OVer.ight Board approv.d a policy .ncouraging
the RTC to enter into agreement. with stat. and local hou.ing
18

finance agencies to provide low-interest financing for RTC
affordable housing properties.

Pursuant to that policy, the RTC

has entered into commitment agreements in Arizona and Texas and
is negotiating for reservations of funds in other key states.
The OVersight Board authorized the RTC to spend up to $6 million
during fiscal year 1990 to pay commitment fees for bond programs,
which could reserve funds to finance the sale of more than 6,000
properties.
The first use of this program will be in Texas, where the
state housing agency is expected to issue $140 million in bonds
during the next few days to fund approximately 3,500 homes at an
expected interest rate of about 8.5 percent.

Under the proposed

commitment agreement between the RTC and the Texa. Hou.ing
Agency, the RTC has identified 2,000 homes that are immediately
ready for sale and that meet minimum property standards for
insurability.

The RTC also has committed under that agreement to

make ready for marketing a minimum of 4,000 additional home.
during the next year.
Approximately 84 percent of the homes currently in the
affordable housing inventory are appraised at $50,000 or le •• and
the average apprai.ed value i. le •• than $35,000.

With lov-

intere.t bond financing, a $50,000 ho.e i. affordable to a family
vith an incoae of about $18,500, or about 53 percent of median
income in Texa., ba.ed on .tandard loan underwriting criteria.
Thi. .ugge.t. that the affordable hou.ing program vill be able to
.erve the need. Of a broad range of lower-inco.e families, not
19

just those at or near 115 percent of median income.
A major obstacle to implementation of the affordable housing
program has been the sheer difficulty of getting thousands of
small properties ready for sale.

For each property, someone must

order an appraisal, authorize necessary repairs, select and
contract with a broker and notify the clearinghouses.

Since

asset management contractors have not yet been selected in large
numbers, the RTC's limited staff has performed these jobs on the
initial properties.

As institutions are resolved and private

sector asset managers are selected and placed under contract, the
flow of properties into the program is expected to increase
dramatically.
We have included as an attachment to this statemant a
listing of the 100 single-family properties offered for sale
under the first phase of the program, along with information
about the property and buyers.

In addition, wa understand that

the RTC will be releasing its second inventory of property this
week, which will again include a listing of all properties
eligible for the affordable housing disposition program.
The RTC has recently reported to the OVersight Board on its
experience with the initial pilot program involving the marketing

ot 100 sin91e family homes in 11 states.

Though the report is

ba.ed on very liaited experience, the RTC has ottered a number of
ob.ervation. about the program.
First, the income of purchasers ranged trom 30 to 115
percent ot .edian, with an average inco.e at 83 percent of
20

median.

Second, prearranged financing through bond or other

programs helps to facilitate sales.

Third, repairs are needed in

most cases (about $1,000 per unit) to bring the properties up to
standard.

Finally, condominium units and duplex and triplex

properties -- which represent a sizeable portion of the inventory
present particular financing and marketing problems.
As you know, the Strategic Plan did not provide for the
immediate use of direct subsidies such as price discounts and
concessionary financing.

Given the composition of the affordable

housing inventory, it now appears that a wide range of lowerincome families will be able to buy these properties without RTC
subsidies.

Nevertheless, the OVersight Board has had the issue

of subsidies under study for several weeks and is examining
various options.
We hope over the near term to see a rapid increase in the
number of properties made available under the affordable housing
program.

W. expect to see those home• • old to the intended

beneficiaries of the affordable housing program.

The OVersight

Board will continue to monitor the affordable housing program
carefully and will take the step. nece.sary to a.sure that the
affordable hou.ing objective. of FIRREA are met.
Minority outr.ach
The .inority outr.acb effort. of tb. RTC fall
cat.qorie.:

int~

two major

outr.ach to minority and woa.n contractor. and

pre.ervation of ainority- and woa.n-owned in.titutiona.
Tb. RTC i. d.veloping it. tinal polici •• and procedure. for
21

contracting with minority contractors.

Thus far, the RTC has

concentrated on getting eligible minority contractors registered.
Of the 5,378 contractors that registered with the RTC 1,101 or 20
percent are firms that are owned by minorities and/or women.

The

RTC has continued to conduct workshops and seminars around the
country to promote and provide information about the outreach
program.
This registration program represents a critical element in
RTC'. minority outreach efforts, because it forms the basis for
the selection of contractors.

The RTC will solicit qualified

contractor. on a generally random basis, but will include at
least one minority or women-owned business or joint venture
(unle.s none has indicated the capability for the .p.cific
undertaking).
Based on preliminary data from the first quarter of calendar
year 1990, approximately 206 or 15 percent of the 1,411 contracts
award.d by the RTC receiverships have been to minority- and
wom.n-owned businesse..

The •• contracts represent about $3.9

million of the approximately $25.3 million

i~

total .stimated

contracting f ••••
Th. OV.raight Board i. in the proc ••• of developing it. own
regulation applicabl. to it. contracting activiti •• to en.ure
that firma own.d by ainoritie. and Women are given the
opportunity to participate fully.
Th• • econd major area of outreach i. an effort to facilitate
the continuation of ainority inatitution., a. directed by FIRREA.
22

The oversight Board has authorized the RTC to postpone closing a
transaction for up to nine months or provide bridge financing for
the same duration in order to assist minorities acquiring
minority institutions.
There are presently 14 minority thrifts in conservatorship.
As of June 12, the RTC has resolved 6 other minority owned
institutions.

Two ot the black-owned institutions were sold to a

black-owned bank and another minority thrift was sold to a
minority-owned bank.
liquidated).

(Only one minority institution has been

The RTC has provided a loan to a minority acquirer

to facilitate the acquisition of another minority institution.
The OVersight Board will supplement these efforts through a
program of intormation and outreach to minority- and women-owned
organizations.

On a quarterly basis information will be provided

to the appropriate organizations which lists all the institutions
in conservatorship and identifies those which are minorityowned.

J'U'l'UlUI UQOIUXZ)l'l'8

Since the thrift criaia first emerged, there have been a
number of .ourcea providing explanationa and .atimat.a of the
size of the problem.

Each haa a projection aa to how many

thrift. will require qovernment expenditure. and how much the
entire cleanup vill coat.
So.e give co.t e.timate. on a pre.ent value baais while
other. qive them on a cash baaia.
23

Some estimate total coats for

resolving the thrift crisis, while others focus on additional
funds required.
Estimates also vary on whether they include REF CORP interest
costs, interest on working capital, and even the effect on
government borrowing costs.

Including interest costs treats the

savings and loan program differently from other government
programs and has the effect of dramatically increasing cost
estimates.
In short, there are a myriad of estimates prepared using a
variety of methods.
most attention.

Of course, the highest estimates qet the

Let me give you our view of where things stand.

FIRREA established a funding structure which has three
part..

First, it provided for the payment of prior commitments

of FSLIC from the old FSLIC fund, anticipated insurance premiums
from SAIF members, other revenues received by FSLIC, and, as a
last resort, Treasury fund..

At the time FIRREA was signed into

law, it was estimated that the cost of winding down FSLIC, in
pre.ent value terms, would be about $40 billion.

Given market

condition., it now appear. that the co.t will be higher than
originally e.timated.
FIRREA require. the RTC to review all of FSLIC'. 1988
a •• i.ted thrift acqui.ition. and report to Congress and the
OVer.ight Board.

Under the Strategic Plan, the report is to be

completed by August 31, 1990.

At that tim., w. will b. better

able to .valuat. the long-tera cost of

th...

modifications where .aving. would accrue.
24

cas.s and to pursue

Second, FIRREA provided $50 billion ($18.8 billion in
appropriations, $1.2 billion from the Federal Home Loan Banks,
and $30 billion from REFCORP) to resolve the RTC caseload -- that
is, insolvent savings and loans which fail during the three years
subsequent to the enactment of FIRREA.
At the time FIRREA was enacted, there were approximately 350
insolvent thrifts with assets of about $170 billion and roughly
another 150 institutions with $100 billion in assets that would
almost certainly become insolvent in the near term.

The $50

billion requested was based on the most credible estimates at the
time, prepared by the Federal Oeposit Insurance Corporation, the
Federal Home Loan Bank Board, and the General Accounting Office.
Finally, FIRREA established the Savings Association
Insurance Fund (SAIF) to bear the cost of thrift failures which
occur after Auqust 9, 1992.

Though we did not have a firm

e.timate of the funds that would be required by SAIF to meet its
obligation., FIRREA authorized the Treasury to provide up to
another $32 billion for this purpose.

The present value of these

future commitment. i. $23 billion.
At the tim. of the legislation, there was a great deal of
uncertainty about the long-term cost of fixing the problem.

The

Administration .tated repeatedly in letter. and te.timony that we
could not .ay preci.ely which or how many institution. would
tail, the nature and quality ot their a •• et., what it would take
to re.olve them, how the pertormance ot the economy and the real
e.tate .arket would affect cost., or where inter.st rates would
25

be -- all key variables in estimating the cost.

Those same

difficulties exist today.
To further illustrate this point, let me quote from a letter
which I sent to the Chairman of the Senate Banking Committee,
dated June 23, 1989, in response to his question about the
adequacy of funds to be provided in FIRREA:
"Let me emphasize ... that this level of resources, no
matter how thoroughly researched or widely agreed upon, is
still based only on estimates.

Uncertainties include the

level of interest rates, the strength of the economy, as
well as many other factors that could have a significant
impact on the size of the problem.

As a result, the actual

cost of case resolutions could be higher or lower, dependinq
on the actual circumstances."
As of June 8, there have been a total of 443 thrifts with
$222 billion in assets placed in conservatorship.

The RTC has

resolved 148 cases for which the estimated loss totals about $18
billion.

In other words, the RTC has incurred losses equal to

about 36 percent of the $50 billion provided

~n

FIRREA.

If the RTC were to resolve all 141 institutions planned for
the third quarter of fiscal year 1990, estimated losses would
accumulate to $28.3 billion by June 30.

At that point, there

would be roughly 250 institutions left in conservatorship, plus
additional thrifts which come under the RTC's control.
When we appeared before you in January, we stated "when we
became convinced that additional resources are necessary to
26

continue the program, we will request them in a timely manner."
It is now clear that the amounts projected and authorized for the
RTC in FIRREA will fall short of what is required.
The causes of these increased RTC losses appear to fall in
three different categories:

the losses in individual thrifts are

larger than expected; marginal thrifts are likely to fail sooner
than expected (becoming the responsibility of the RTC, not SAIF):
and the total number of projected thrift failures has increased.
Why has this happened?

We believe the answer lies in a

combination of the factors causing uncertainty.

The fact is that

we now have what we simply could not have had at the time FIRREA
was considered and enacted -- actual experience with the cost of
marketing insolvent thrifts and their assets.

This experience

with 148 resolutions has made us more pessimistic about losses
embedded in thrifts both inside and outside the RTC's current
casaload.

A number of factors have contributed to these higher
projections, including ones with which this Committee is very
familiar.

The first is a general decline in regional real estate

markets, particularly commercial real estate.

This has been true

not only in the southwest, but in the northeast, southeast, and
other parta of the country.

Unfortunately, thrift assets are

beavily concentrated in real estate, whether through direct
investment., foreclo.ed property, or real e.tate loan..

FIRREA

sharply curtailed the amount of commercial real estate activities
that thrift. can engage in going forward, but obviou.ly, it could
27

not address the losses already embedded in troubled thrifts.
A related concern involves the institutions that we expected

would be the primary purchasers of thrift deposits and thrift
assets -- other depository institutions.

It's no secret that

healthy banks and thrifts have become much more leery about
taking real estate assets onto their balance sheets in view of
current market conditions.

Unfortunately, that is exactly what

the RTC i. trying to sell to them.

The result has been few

"whole thrift" transactions, where both good and bad assets pass
to an acquirer, and few transactions where the acquirer takes any
bad a •• et..

Thi. means more bad assets piling up at the RTC with

lower expectations of the ultimate revenues they will produce.
A third factor ia interest rate., which are now higher than
we had projected.

That translates directly into increased

operating lo.ses for thrifts in conservatorships and indirectly
into softer real estate markets, since interest rates always play
a key role in that .ector of the economy.
A fourth factor ia unexpected lo•• e. in below-investment
grade bond., .ometime. referred to aa' "high yield" or "junk"
bond..

Aa

you know, FIRREA required thrifts both to dive.t these

bond. and to carry them on their books at market value.

The

market for the.e bond. has dropped ott .ub.tantially in recent
month., and virtually all of the major thrift holder. of the.e
bond. have been taken over by the RTC.

The re.ult i . that the

RTC 1. now one of the large.t owner. of junk bond., with .o.e $4
billion in it. portfolio, and it could end up with .ub.tantially
28

more.

At the same time, we just don't know exactly how much

these bonds will be worth when they are finally sold.
A fifth factor is that, at least for some purchasers,
thrifts just are not as attractive a franchise relative to banks
as they once were.

This is true in part because it is no longer

possible either to run a thrift with low capital or to invest
insured deposits in risky activities like direct real estate
investment.

That is as it should be, since it was activities

like these that helped cause the problem.
But other restrictions imposed by FIRREA that are unrelated
to safety and soundness, like the tighter qualified thrift lender
test, may have also reduced the value of the thrift charter.
However, it i. too soon to say by how much.
Again, all of these factors have produced not only higher
than expected losses, but also an increa.e in the population of
saving. and loans that will require attention.

To .ome extent,

this result. from the fact that cases which we expected to be
handled 1n the tuture by SAIF -- and for which rIRREA provided
$32 billion -- will in tact be handled by the RTC.

These cases

are merely moving torward in time.
When vill more tunding be needed?

Even though the RTC has

committed only about a third ot the $50 billion, it COUld, with
an agqre•• ive .chedule ot ca.e resolution., run out of fund. by
the end of thi. calendar year or early next year.

If progress

occur. at a .lower pace than we would hope, RTC re.ource. will
la.t longer.
29

Of course it would be possible to slow the pace on the hope
that market conditions will improve in the future.

We believe

that there has been too much speculation already.

Our job is to

be steady, do the work, and take no further gambles with the
taxpayers' money.
How much more will be needed?

As we have discussed, there

ara too many variables to pin a single number on it -- again,
number of cases, losses on assets, interest rates, and market
conditions, to name a few.

The most responsible course, we

believe, is to consider a range of possible outcomes.
OTS has indicated that there are some 299 institutions with
assets totalling $193 billion which are likely candidates for
transfer to the RTC.

It should be noted that tha OTS fiqures are

as of April 27, 1990 and include 30 institutions (as of June 8)
which have since come under the control of tha RTC.

We cannot

say for sure how many more of this group will hava to be resolved
b~~e

RTC.

Thera ara another 315 thrifts with $152 billion in assets
tor which the future i. uncertain but which

~rrently

have

positive tangible net worth and do not require assistance.

We

simply do not know which and how many of th •• e institutions will
com. to the

~

and what condition they will be in when they get

there.
In .hort, at this point in tim., the number of inatitutions
which the RTC will have to r.solve i • • imply unknowable.
this number drive. the cost ••timate.
30

Yet

An~ther

source of uncertainty is the level of loss incurred

by the RTC on institutions which come under its control.

Losses

in turn depend on a variety of factors which are difficult to
predict.

What will be the condition of institutions taken over

by the RTC?

How many will be resolved on a whole thrift basis

and how many clean?
The more liquidations and clean thrift resolutions that the
RTC does, the more assets it must sell and the more uncertainty
there is about 108se8.

The discount which the market places on

assets will vary by category.

For example, performing mortgage

loans generally can be sold for a higher percentage of their book
value than can owned real estate.

In the end, the loss rate on

assets will depend on unpredictable factors such as market
conditions, including the state of the real estate market, and
interest rates.
Thi. i. clearly a formidable list of factor., each of which
can .ubstantially affect the total cost of resolving the RTC's
caseload of in.titution..

For example, a reasonable lower limit

on the number of institution. which will have to be re.olved,
together with .mall, medium, and high levels of los.e. on .elling
the a ••et. of the•• thrift., produce co.t e.timate. (in present
value terms) of $89 billion, $97 billion, and $114 billion.
Por reterence, the estimate. in this .tatement should be
compared with $73 billion provided in FIRREA.

In other words,

they include the $50 billion provided for the 1989-92 period and
the $23 billion (in pre.ent value terms) provided tor the
31

succeeding eight years.
The same loss factors applied to a reasonable upper limit on
the number of institutions to be resolved yields cost estimates
(in present value terms) of $99 billion, $113 billion, and $132
billion.

Again, these figures should be compared with amounts

already provided by FIRREA, not added to them.
Of course, one could make even bleaker assumptions and make
an estimate based on even higher populations of failed thrifts
and even higher loss factors.

This would dramatically increase

the top range of the cost estimate.

While such an scenario is

theoretically possible, wa believe it to be quite unlikely under
any reasonable .et of economic conditions.
As has become the convention, all of these estimates are

given in pre.ent value terms.

Presenting estimates in constant

dollars allows u. to compare better, but admittedly does also
produce a lower total than nominal dollar estimate ••
Any attempt to convert these present value costs to yearly
exp.nditur•• must incorporate an additional factor, the pace at
which the RTC can r •• olv. institution.'.

This gr.atly affects the

amount of loss which the RTC must absorb on a yearly basis.

A

repre.entativ. rang. ot the re.ource. the RTC may ne.d in fiscal
year 1991 would be about $30 billion to slightly over $50
billion, excluding working capital.

FIRREA alr.ady provides .ome

of the•• r •• ource. to fund 10•••• through REFCORP.
Th. other aajor .ource of uncertainty 1n .easuring the
yearly effect of RTC .pending is of course working capital.
32

We

have provided the RTC access to working capital through the
Federal Financing Bank.

When the RTC uses these borrowed funds

to acquire assets, it counts in the budget as an outlay; when
assets are sold, it counts as a receipt.

Thus RTC's short-term

borrowing requirements will result in enormous budgetary swings
and distort the true picture of the deficit.
Allot this suggests that there are too many unknowns to
provide a single estimate of the ultimate cost.

Taking into

account all of the uncertainty and all of the variables, it
appears that the cost of resolving institutions which are likely
to come under the control of the RTC will be in the approximate
range of $90 billion to $130 billion.

Once again, these figures

are in present value terms and include the $73 billion provided
in FIRREA ($50 billion for 1989-92 and $23 billion for future
SAIF cases).
How should additional fund. be raised?

The Federal Home

Loan Bank system simply does not have the capacity to back
.ubstantially more Resolution Funding Corporation (REFCORP)
borrowing.

Additional r •• ource. will have to com. from the

Treasury fund ••
Finally, bow should the fund. be provided?
be two basic choic.s:
some or all remaining

Ther. appear to

.ith.r provide a .p.cified amount to cover

10.... or provide

nec.ssary to complete the job.

the RTC such sums aa are

No matter bow the funds are

provided, it will not change the cost of resolving the saving.
and loan crisi..

Thi. i. not a discretionary activity: the
33

government's deposit guarantees must be fulfilled.
There is precedent in the federal budget for providing
indefinite authority to fund mandatory activities.

congress can

choose to provide resources to the RTC in increments, but that
means having to face the prospect of returning at relatively
short intervals as markets changes and, along with them, the
estimates.
The RTC faces another important constraint in the form of
FIRREA's obligation limitation.

This is the provision which

limits obligations -- most notably, working capital borrowings
to the amount of unused REFCORP authority, cash on hand, and
85 percent of the fair market value of assets held by the
corporation.
The RTC is likely to run up against the obligation limit as
soon as or even sooner than it reaches $50 billion in losses.

If

the RTC cannot raise additional working capital and the cost of
acquiring asset. exceeds the amount generated from .ale., it
cannot proceed with resolutions.
The OVersight Board intends to work

wi~~

the Congre •• and

the Admini.tration to develop an approach which will provide the
RTC the re.ource. nece.sary to fini.h the job, while maintaining
adequate control..

Given the enormous .ignificance of thi. issue

for the federal budget, we believe that thi. i. a matter which
.hould be con.idered in the current budget di.cu •• ion. between
the Admini.tration and the Congre•• ional leader.hip.

34

In closing , we would echo a view expressed recently by
Chairman Seidman.

This is a long, hard job and it will take an

extended period of time to finish it.

However, we stand behind

the commitment made by President Bush in his first weeks in
office:

protect depositors; clean up the industry at the least

cost to the taxpayers: and punish the criminals.

35

ATTACHMENT 1

Among the requirements established in FIRREA for this
appearance, OVersight Board must:
"provide an estimate of the short-term and long-term
cost to the united states Government of obligations
issued or incurred during such period;" and
"describe the costs incurred by the corporation in
issuing obligations, managing and selling assets
acquired by the corporation."
As of March 31, the RTC had issued about $2.5 billion in
obligations in the form of short-term working capital borrowings
from the Federal Financing Bank.

No significant costs were

incurred in connection with the i.suance of these obligations.
As required by FIRREA, these borrowing. are backed by a.aeta
having an estimated fair market value substantially in excess of
$2.5 Billion, in order to comply with the 85 percent teat.
on current projections of market value, we expect that the

Based

u.s.

Government ultimately will not incur any coat in connection with
the.e ahort-term obligation••
At the pre.ent time, virtually all of the assets under the

RTC'. control ate managed either by in.titution. in
con.ervatorahip or, with re.pect to receivership a •• et., by
acquirer. pur.uant to .hort-term contracts.

Thu., for the

reporting period, the coat. of managing and .elling RTC a ••et.
has b.en borne at the con.ervator.hip and receiver.hip level, and
about $30 million was paid to private contractor. for this
36

purpose.

It should be noted, however, that the RTC's operating

plan for the third quarter of fiscal year 1990 contemplates an
expenditure of $70 million for payment of fees to asset
management contractors, reflecting the anticipated widespread use
of asset management agreements.

37

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TREASURY NEWS

Dellartment of the Treasury • Washington, D.C. eTe.ephone 5 ••-204'

FOR IMMEDIATE RELEASE
July 11, 1990

CONTACT:

Office of Financing
202/376-4350

RESULTS OF AUCTION OF 7-YEAR NOTES
The Department of the Treasury has accepted $8,000 million
of $47,015 million of tenders received from the public for the
7-year notes, Series F-1997, auctioned today. The notes will be
issued July 16, 1990, and mature July 15, 1997.
The interest rate on the notes will be 8-1/2%.
The range
of accepted competitive bids, and the corresponding prices at the
8-1/2% interest rate are as follows:
Yield
8.55%*
Low
8.58%
High
8.57%
Average
*Excepting $5,000 at lower yields.
Tenders at the high yield were allotted

Price
99.741
99.586
99.637
100%.

TENDERS RECEIVED AND ACCEPTED (In Thousands)
Location
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
st. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
Totals

Received
10,681
45,501,773
6,903
14,380
34,438
11,586
1,060,609
24,572
23,268
19,605
7,439
296,261
3,883
$47,015,398
$

Accepted
10,681
7,452,773
6,903
14,380
34,438
11,586
350,609
20,572
22,768
19,605
7,439
44,561
3,873
$8,000,188
$

The $8,000
million of accepted tenders includes $524
million of noncompetitive tenders and $7,476
million of competitive tenders from the public.
In addition to the $8,000 million of tenders accepted in
the auction process, $100 million of tenders was awarded at the
average price to Federal Reserve Banks as agents for foreign and
international monetary authorities. An additional $271 million
of tenders was also accepted at the average price from Federal
Reserve Banks for their own account in exchange for maturing
securities.
NB-870

'1'IiE WHITE 800SE

Office of tb. Pre.s Secretary
(Sou.ten, '1'.a&a)
t~r Imme~l.te .. i ••••

SECa£TA~Y

Ge~t!e

6:13

July

10, 1990

PRESS BRIEFING BY
OF THE TREASURY NICBOLAS BRADY
R. Brown Convention Center
Houaton, T.aa.

P.M. CD'!'

MR. BART: ~ evenin;. Secrotary of Treasury ~ichola.
s,ady 1. here to brief on summit economic ic.ue.. Thi. ~tlefin9 will
be en the recQrd for a.und anc c.=era. The secretary will have a
brief ~,.nin, .tate•• nt aft~ th.n take your quectiona.
Mr. Secretary.
SECRETARY BRADY,

Thank you, St.v••

Goed afternoon. The Hou.tsn Econo.lc Summit ... tinS ef
the lead.r. of the •• jor in~u.trialiae~ nations co... at a time of
positive change an~ sreat epportunity in the wor14 .conomy. The
Gutleok for .atendin, the eight-year-ol• • conemic .xpan.ion and the
G-7 ,c5n~mies remains 'oo~, creatln~ the prospect for n.w job• •nd
rising living standarcs. At the ••• e time, dramatic pQlltlcal an~
.conomic r.form efferts are un4erway in Ea.tern Europe an~, 'Qually
impartant, CQmmitment tQ market-baae~ economi •• I. tranaforaing Latin
America a. vell.

The central challeD9.a facing 1e•• or. of the
are to enoeura,' continued growth in their
evn economies an. contlnue~ progre.. toward ecenomlc reform in
developing c.untrl.a.
in~ustriol1z.d demQC~aciea

Although work on tbe econ •• ic communique ~ill continue
this evenin" there will ~e further .i.cusllona a.ong the leaders
to~rrQV morning.
But there 1. ao110 censensus on .everal JOints.
The lea~er. will reaffirm the ec~ne.ic policy ccordinatien process
that bas c~ntribute~ importantly te economic ata~111ty and to
austaine. trowth. They will alsQ reaffirm their co~ltm.nt to recuce
trade an~ current account balances, a. well as .tructural impe~iments
to

".1Itb.

There 1. consensus amonS the lea~erl that the Uruguay
RounC ef trade ne!ottatiena must proeead to a aucce.alul concluaion.
It i. essential to eliminate tra~e barrierl ana exten' GATT
diSCiplines to new areas including aervice., tra~e-r.lated inveatment
measurea an. intellectual pr~perty in 9rder to strenstben the trodint
system and promote economic ~rowth worl'wide.
Tber. i. general a~r.ement en the n.ed to reduce
expensive and inefficient barri.ra to trade ano a~riculture, although
vi!oreus discussion continuea en tbe specific .lementa of a
multilateral aolutioa.
Tb. lea4ers are air •• d that they will ccntinue to
economic a.siatance in E•• tern Europe and L.tin America. The
structured to enc0ur_g' ccntlnued economic teferms.

prcvi~e
ai~ ia

The que.tiGn of bow to eneouraSe economic referm in the
SQviet Union will be studie4 by the IKF, the World Bank, the O~CO,
and the £BAD. The IMF will CGnv.ne these Gr~.nlaatiGnG for the
.'ORE:

- 2 -

purpcse of makin~ the study, an. it will be .ade in cloae
conaultation with the Be.
~he 1.aGera have noticed the ~ro~ress that has occurred
in tbe past year 1n r.~ucins c.mmercial ~ank debt ~urQena under the
strensthened 4e~t atrateiY, and they have ~j.cu •• ed President Bush'.
Enterprise fer tbe Aaeric •• , whieh involve • •e.aure. to li~erallle
trade and inves~ent reii ••• in Latin America an~ the Caribbean as
well a. reduction of official .ebt in that ,.glen.

The le.4er8 are also discussing environmental iaaue., and
inclu~e a atrQng cemmitment to
cooperate an ,lobal environmental prG~l.ms. The u.s. ba. been a
leader in a.4reaa1n9 these i.suea in our own eCGno.y, a. vell a.
encourasing greater economic environmental emphaaia in the
international financial inatitutions.
we e%pect that their communique will

ltd be ,lad to take your questi.na.

Q
Mr. Secretary, precisely what 4~ you expect thia
mi8sion to study the Soviet Union to analyze? What is ita purpose?
Anc what types of tee.amendationa i. it empowere. to make in term. of
We.tern a •• iatance?

SECRETARY BRADY: Well, it's empower •••• I'. not ,01n,
to preju4ge the atu~y, an~ ncbc4y tried t. to~ay. The in8tructiona
to the ,roup vill .e to .tu~y the Soviet economy, try to coae up with
a quantificetien and quality study of what exactly the con~itions are
in the SQviet Un10nl how the reform efforts that Chairman Gorbachev
haa talked about are goin9 te be put into place, ana what kind of
technical aaalatance .ight ~e involye~ in aidin, those reform
lIovelients.
So wbat precisely the atudy will lay ncbe4y even breugbt

up.

o Well, you aay what kind of technical assiatance to
provi4e
are you suggesting that if this irQUP sugge.ta .treet
Weatern economic ai', the V.S. WGul~ atill oppoae that?
SECRETARY BRADY: I'. not sugge.tin, anythift§. I'.
5ugsestlng what . . '11 Q~ ls wait an4 see hew the .tu.y com.s out
firat.
Q
What about the question ef ~th.r countries like Weat
eermany an~ France providing direct ec~n~mlc Ai. at this tl.e? Bas
that been adere.sed?

SECRETARY BRADY. Well, Presi&ent Bush, of courae, n~teG
the fact that Germany has indicated that they're going te provide
support for the Soviet UniQn, and indicated that every country has to
d~ what they think en a bilateral basi. ia in their own beat
intere.t.
~r.

Secretary, it's common for a gevernment to .eal
preblem ~y .tu~ying it. ~~y should we believe that
this study will UIOl.lnt to anything that will leaa to anything
werthwhile7
Q

witb •

~1fficult

SECRETARY BRADY: I ~on't knew of any financial problem
can .ake yeur mind uf en what you oUiht tc do until you have
8~me facts.
I think the central element that you bear fr~m everybody
who'. been to .ussia, who ~i8CU6S.S the prGblem is they don't know
exactly what the ~{~~um.tan~e. ~re, SG the IY~ ia !~in9 ta convene
this irGuP, includin~ the World Bank, the OECD, an~ the EBRD, and
they're gcin~ to pr~uce .~mething. An~ it's suppo.e~ to be prQ~uce4
1n aiz montbs. And I think that will be the basia on whicb p.Q~le
can make their mind up.
that

Y0U

o

Do you think this will
JoiORE

lea~

to f1nanical aid to the

- 3 -

Soviet Union?
SECRETARY BRADY: I ~on't know where it wl11 lea4. If I
knew tbe an.wec to that, we woul~n't bave put the Itu~y tG~ether.
Q

What exactly wa.

deci~.~

on farm lub.idle.?

SEC~ARY BRADY,
Are you talking .bout the a,ricultural
problem in the Uru~uay Roun~? Well, I can say this a~.ut the Uruguay
Round an4 the dl.cua.lon that took place to~aYI I think lub.tantial
progre •• ha. been &a~e. There ha.n't ~een so muc~ progre •• made at
this particular moment that eny concluaive lan~ua~e bal been decided
uion. That will take place tonight, and the Sherpas wl11 be wotkln~
way Int. the late bour. to come up with that. But the intentlcn of
the beads wa. to try anG move forwara the status of tbe Oru,uay Roun~
from where it was after the OECD meeting when, I'm lure you re aware,
there were tWQ wi4ely-divergent point. of view.

e Mr. Secretary, can yeu tell ua wbat or whG i. the
bang-up tb.n on agricultural .ubsi~iea?
SICRETARY BRADY, Well, I 'on't think you can point tQ
any ene per.on becauae the pro~lem has been deacribe4 any nuaber of
times. The BC baa a fairly well-~efine~ po.ition, the Unit.~ State.
has a wel1-~ef1ne~ position, the .o-callee Ceirn. graup, whicb
include. Au.tralia, New Zealand an~ .everal other a;ricultural
netiona, ana Cana~a all have a ~iffer.nt kin~ of way of looking at
it. SG thoae positions basically h.~en't changed In es.ence. But in
terms of mQvin, the problem forwar~, I think you'll ••• in coamunique
langua,e a 41ff.r.nt way of looking at thia.
Q
Mr. Seer.tary, In alaln9 the Soviet Onioni II there
any cGmmitment from West Germany, France, the otbera -- italy --to
curtall, slow down, In any way inhi~lt their own intention. to
proceed with ai4 until the study 1. completed?

SECRETARY BRADY: Well, the only Ipeeifie elfer of ai~
that I know abcut i8 the one that hac been put forward by w•• t
Germany. An~ there vas no ~iScu86ion on their part of alewin~ down.
Mr. Secretary, you .ay the exact language on
Q
a9dcultura ha. not been worke~ out -- I un~er.tan4 that. But bew
about sketch!n; the outline of what has been agre.g to on
asricultura?
SECRETARY BRACY, You know. if I coul~ Co that I could
yeu the precise language. What I'm trying to lay ia I think
there was =ovement from the ~l&ce that we were led9~a at after the
OECD.And tbat .,111 proauce len9uaie, bopefully late toniiht, whicb
will be reveale~ by the heada of .tate tomorrow. But 1 can't give
YGU that language now ~ecause it hasn't been asre.~ to.
~ive

g

But what i. the movement?

SECRETARY BRADY,
existed at the OECD.
Q

The

~cve~ent

i8 cff the roaition that

Well, who moved?

SECRETARY BJtA!)YI

Both .icea IIOved.

Q
Is it correet that the o.s. has rejected Mrs.
propo.al that the lansua~e emtrace an ag9re~ate mea.ure of
aupport Qoverlng the entire ne90tiations in agriculture? An~ i. it
the ~ase that th~ U.S. is still insisting that the a9~i~ulture
neiotiatiQn be dlvi~e4 into ch.~ter. co~ering the three ~.ln ar.a.?

~h8tcber·.

SECRETARY BRADY, Thoa. subjects were ~i.cu •• ed. Not In
detail becau.e the heads Gion't get into them in that detail. But
that certainly i. one of the ~tter. that bas to be resolved before
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- 4 -

too much more pro9ress i. made.

o The French feel that, just like at tbe Dublin EC
Summit, there was the call for a stu~y an~ analysis of Soviet
requirement., but-at the same time, an implicit call for action for
ai~ at th.end of the study -- that this has the same effect.
Namely, that the G-7 now have committed theme.lve. not only to
analy.i., but then to action following the report. I. that your
underatandin9?
SECRETARY BRADY: No. My understanding is that theee
four organization. which will be convened by the IMF will make a
.tudy. What the element. are in that .tudy we will leav. up to tho.e
organization.. I would only point out to you that with regard to the
IMF, at least, -this is their business -- trying to tranform economies
from command societies into free market organizations. So I think
it's particularly important that they ate convening tbe movem.nt.
The World Bank and the OECD and the EBRO are also involve~ in that
bu.in••••

o Mr. Secr.tary, there's a report by Reuters this
afternoon that the We.t Germans claim that there was a compromise on
the agricultural issue. That it dealt with an objective meaBure to
gauge the reduction of subsidie., which i • •ometbing the Ee has
vanted. Is th.re any truth to that?
SECRETARY BRADY: I heard that report and I ~on't think
it's correct. I mean, I think there ar. all mann.r of things
discu •• ed in the Sherpa ~isou •• ion., but that never reached the room
that I was in with the heads. So I don't believe that'. accurate.
But I will say tbat p.opl. are trying to come up with solutions and
this may have been one that's offered. I don't personally know that
for a fact, but I think there will be 80me movement because the hea~.
want movement.
Q
Mr. Secretary, throughout the day there have been
rumors of deal., trade for agriculture, agriculture for environment
and 80mething to be named later. Are th.re ~eals 1n this, or are you
taking this one piece at a time?

SECRETARY BRADY: One piece at a tim..
you're talking about it, that'. not accurate.

o

In the senae that

Those have be.n the rumors.

SECRETARY BRADY:
think they're unfounded.

I'm not .aying they aren't rumora, I

o Mr. Secretary, i. the agreement on the Sovi.t study
being relayed to President Gorbachev this evening? And 1f so, how?
SECRETARY BRADY, That's a good ~ue8tion. The question
wa.,haa the recommendation on the soviet study been relay.d to
Chairman Gorbachev? I ~on't believe .0, but 1 came .traigbt from the
meeting here. I don't even know that the four organizations that are
making tbe study have been actually informed. (Laugbt.r.)

o Is the Soviet .tudy to come up with recommendations
for the Soviets, an~ are they then required to implement th.m in
or~er to receive Western aid?
SECRETARY BRADY, I want to point out that this i. not •
typical 1MI' study where the nation dealing with the USF agree. to a
program and then fund. ensue. This is simply a taking advantage of
the know··lww in

~he

IMP.

And 1

':I:ani.:

;;.:) mak~

e:ll!ar tha i: U: t"ll1 &1.0

include as equal partner. to the study the world Bank, the OECD and
the EBRD to the extent that it'. got it's organization forming as
part of that .tudy. So a. I said at the be9inning, there was no
letter of instructions given to these banks, and as I mentioned a
.inute ago, they haven't even been talked to yet.
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- 5 -

it'. tUlipa.

B.ck the,e.

The

we&4n

with tbe heart en.

Beart -- n.,

Q
Wh.tever. Throu,hout all of this it'a ~een a.id
that the United St.tes and the other c.untries woul.n'tbe
negetiatint GATT b.,e, that they would be lockinv for • political
statement. Ia what'. going en now to negQUat. lpeoifice., to
change the ap,roach to dealing with liriculture, or .r. we atill jUlt
arguing over a political Itatement in lupport of the ne,otiations?
. SEC~ARY BRADY, 1 gues. wben you tet the b.a~s of leven
countrl •• t~,etber, leading countries of the w~rld, pluse the BC, to
.cme la,se extent, that's a political meetint. But I would h.ve to
.ay that what'a b.ing .trlvea fer now by the Sherpa. i. langua,e tb.t
can ae re-presented to tbe beads probably tomorrow mornin, tbat tbey
can agree on. ~& aOlle extent, the extent that it movel away f,oa it
wbere it wa. at tbe OECD, tbere'. certainly a political input to
tbat, otherwia. it wouldn't have moved.
Q
will the communique aay 8pecifically that nationa
that want t. have immediate aid to the seviet Onion -- tbat the 0-7
bl ••••• that or hal no objectlGn. to it?

SECRETARY BRADYa No, it WGn't be Ipecific In tbe aanner
that you've atat&d. I aean, I'm not tryln~ to be cute about
anlwering your qu •• tlen.

o Mr. Sec,etary, one O.S. official called thia
a,reement witb the Soviets -- on the Soviet .tu4y a victory for the
United State.. In what •• nae is it a victory?

1..

SECRETARY BRADY, Well, I don't think it
I don't
know who woule '.Y that. (Laughter.) In my mind, there w••n't any
~lg battle 90in9 on on this particular point.
We will try te arrive
at a position where we coulo provi~e energy fer these organizati.n.
to to forward and CQme up with .omething definitive. You know, I'm
sure that every tille you've talked about thie probl.m everybody .ayl,
well, things are tough in the SQviet Onion. But nob~y ba. trle4 t.
quantify what the prGblem it, where the problem i., how Jluc.b IIGney
might be needed, if any is needed, when it might be nee'ed, who need.
it. It need. a profe.aional aeselsment, and that'. what wa. calle.
fIDr.
Q
Mz. Secretary, 4i~ the subject of reduclni tbe
official debt. ef middle income countriea c~.e up at all in this
discussion? An. if so, what actions were taken?
SECRBTA~Y BRADY.
You're talking a~out the Gfflclal debt?
There was a review of the ~ebt stratefY, the atrengthened d.~t
.trategy, .G-call~, and President Bush'. new initiative for Latin
America, beth of which received strong support from the he.... Aftd
al always, there was discussions about official ~ebt in etber
countries ar~uad the ~Grl~, but there wasn't any definitive atat ...nt
on tbe matter.

o Hr. Secretary, just for clarification. When thia
ceme. up with what.ver they ceme up with -- findings, whatever
you want to call thell -- what happens then? I .ean r ·ja there a~ther
atucy to aetermine what to do with the reaulta of this stu~y7 Is
that how it work.?

9tOUP

SECRETARY BRADY, No. But 1 mean, I don't want to ~e
~ns~e(l~g you~ questl@n.
But uo~1l the atudy quantifies
the problem, tries to lay out ~here, in what aeetora of the Soviet
Onion the problem exista, how Qeep it is, how aerious it ia, wbat the
status ia of tryin9 to fix that problem, then 1 ~on't aee how that
qu.ati~n could be anewer.a.
I mean, at every -- when I wa. in the
private .ector, .ome 9uy came in and aai~, we need a let of money,
we',e net .oin, .~ well, that 90es nowhere. I mean, peQple get
captl~Y3

ld

- 6 -

specific about how much money, where it's needed, how it's needed,
when it's needed, and that's what we're asking for.

a
So you're not looking for this group to come up with
any specific recommendations on what steps should be taken.
SBCRETARY BRADY, Well, they're entitled to come up with
whatever they tbink moves the problem forward. The President has
said at almost every opportunity he supports President Gorbacbev in
his cefe,. efforts. We want to be of help. Other countries want to
be of help. They may do it in different ways, but this study will
try to line out what I've just said any number of times. I'm sure
you don't want to hear it again.

a
Secretary Brady, you're emphasizing you don't want
to go ahead with aid now because you don't know the depth of the
problem or how to approach the probleJR. Pr •• iclent Busb has said all
along be objects to ai4 now because of soviet aid for a Marxist Cuba
and other economie.. Bas he changed, or is there any resolution of
thoae objections in this .eeting?
SaCRETARY BRADY: NoboCy asked me that question.
President Bush's answer with regard to the study would be the sue a.
mine. If you're askln9 at this point what President Bush thinks
about providing aid if the Soviet Onion called him up on the
telephone, I think his answers have been Quite clear. While the
Soviet Onion is providing $5 billion of aid to Cuba, while their
mis.Ues are trained on our city, while 18 percent of their GNP 18
~edicated to defenae, it would be very hard tor the American people
to understancl a loan.
Q

Cuban misailes or Soviet .issile.?

SECRET~

BRADY,

soviet miasiles, I'. sorry.

Excuse me.

o
The Prime Minister of Poland sent a letter to
participants of the summit asking them to reduce Poland's debt
burden. Was thia letter discussed, and were Gome conclusions
reached?
SECRETARY BRADY: I believe the letter bas been diacussed
by the Sherpas. It was not discussed at today's heads meeting. As
you know, the problem of official debt is a very, very complex one.
Poland, at March last year, was given by tbe Paris Club a debt
reschedulin9 whereby all payments on principal and interesta were
suspended for a year.

a But the President'S tatin American initiative -- did
you get a firm commitment of contribution to your proposed Latin
American inv.atment plan?
SECRETA~Y BRADY,
We have .ske4 for support from other
nations. All of them have aaked for the details of bow it might be
put together, particularly the Japanese Foreign Miniater laid he
would like to have tho matter studied and he'd like to aend people
over here to atudy itl &n4, of course, we'd be glad to help on that.

a Do you have any agreement thus far on the exchange
rQte language in the communique, and specifically will there again be
mention of the need for the Japanese yen to atrengthen it?
SECRETARY BRADYz The matter of exchange rate language
not COMe up today. I think tbat will be -- I don't belIeve there
will be much change, uU' l, hasn't been talked about by the heads.

did

All the way back.

a
You mentioned that all manner of things were
discussed on the farm subsidies issue, but not the Thatcher formula,
at least not in the room that you were in. Co~ld you go into aome
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- 7 -

more .etail about what manner of thing. were ~i.cu •• e~ en this issue
tbat we can say that substantial pro~reas was made?
C

Farm subsidies.

o What was ~iaeu.sed en farm
Thatcher pr".csal wa. not?

su~si~ies,

1f the

Q
You mention that all manner of thin;s were ~iscu.sed
en the .farlll suba14i •• is.ue, but not the Thatcher formula. What were
aeme ef the manner &f thin~8 that were diacus.ed that l.a~ you to say
subatantial pro,res8 was made?

SECRETARY BRADY, Well, I'm not going tG ~e precise about
that ~ecau.e these diseu8siQna are s~in9 on ri~ht this minute. So
we'll just have tG wait an~ aee bow that CGme. Gut. SQmebody up
tront 80 I can hear the question.

o The economic study of the Soviet Union -- Is that
the Qnly respon.e the 0.5. ia going to give to Gorbachev'. letter?
SECRETA~Y BRADY:
The u.s. ian't called to iive any
responae. Mr. Cor~achev wrote a letter; obviou.ly the eommunique
will N reported to r·ir. Corbachev when it's finally written on tbe
matter ~f Soviet aid. I'm Bure Preai~.nt Bush will be talking to him
as he Goe. from time to time. The letter obvioualy will have to be
anawered 1ft due cour.e, but that was not •• ttlQ~ t~ay.

o Are the summit partnera ~oin9 to commit themselVes
in any way to helping Mr. Oorbacbev? I mean, that's sort of a
general statement of, we are committing ourselves to ai~ in 50me
fashion, and we're waiting fer results of this stuey to determine how
we will proceed?
SECRETARY BRADY, If I've he.re your question correctly,
the only al~ in terma of loans that I know about ia the German
preposal tQ bank lean that will be guarante.d by the German
,overnment 1n part.

o But -- consider ale in tbe larger •• n.e.
talkin, just about direct ai4. I mean, aid in --

I'm not

SECRETARY BRADY, I mean, that'. going on all the time.
Chairman of the Ceuftcil of Economic Advla~rs, Mike Doakin has b.en to
Russia for a week. The Soviet Finance Minister has been to the
United States. The head of the Soviet Central has been to the UniteC
State., they've come and talke~ with the Treasury. We've tried to
provide whatever information they wanted. It was quite clear from
listening to the discussion today that all of the countries at the
table had ha~ missions to Moscow an~ had miasiGna from ~~acow. So
there are, Ifm sure, all aorts of technical aaaiatance going on.

o
Juat tQ clarify. Can we .ay that the summit nations
are cQmmlttin~ themselves tQ a coordinated effort to help the Soviet
Union in thia time? Eccnemic -SECRETARY BRADY, When we talk about coordinat.~ effort
to help the Soviet Onion -- I ~on't want t~ go back to the same
anawer 1 gave to the ,entleman over here •• cut the first thin~ you
have to d~ ia fln~ out what the problem is. How ~eep it is, how wide
it ia, where it ia. So that's the commitment, I think, that will ~e
aifferent tomGrrow mornin9 when you rea~ the Communi~ue is that theae
feur ~t9anization8 have been chargQ~ with coming up with that kin~ of
atu~y, and they've ~een !iven until the en~ of the year -- six
months. Se that puta a time frame on it which I think will ~e, Qinc~
thh is auch an impc.tt8nt problf'm , ~·dl1.)Je v~"(y JSer{c 1''5'1.y ac:'1hGrea to.
Q
Will there be an endors~mQnt in the Co~uni~ue of
technieal a •• istance to the Soviet Union on~oing and then maybe
expanded? Will there be any reference to technical assiatance,

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- 8 -

pending the study?
SECRETARY BRADY: Well, I can't read through it just that
quickly. I'm sure that there will -- technical a,.iatance was talked
about all through the Communique language, 80 that I think there will
ce~tainly be some mention of that that"
specific.
Q
In Dublin, the European Community decided to have
two studi.s of the same kind. will they go on with thoae studies or
will there be only juat one?

SECRETARY BRADY, No, no, no. The Be will continue their
study. The four horses in this Rtudy are the ones that I've
mentioned a couple times now. The EC is conducting their own study.
But frankly, I remember in the announcement of their study that they
a180 were calling on aome ataff from the OECD and the EBRD as well.
So I think they will be drawing from any number of places, but the
words, I believe, are in close consultation with the EC. So they
will be doing the atudy.at the aame time, but they'll be doing their
own study.

o You said Enterprise for Latin American Initiative
reoeived strong support from leaders. Bave leaders agreed to form
$300 million a year to develop the private aector in Latin America,
and what will be the next steps in Latin American initiative?
SECRETARY BRADY: Well, as you're well aware the
President's initiative was just announced three weeks ago. The
Treasury is already working with the lOB to try and flesh out their
role in making this proposal effective. And the investment fund that
you'ra talking about 1s part of it. We've talked about that with
some of our 0-7 colleagues today ana, as I said, at least two or
three of them are senaing people to tha United Stat.s to learn more
about the details of that.
Q
Mr. Secretary, did Kohl and Mitterrana go quietly,
or was it a fight?

SECRETARY BRADY: There was no -- there'S no fight. I
don't know really exactly what you mean. The great thing about
President Bu.h's leadership -- that these meetings are conducted in
an atmosphere ot construotive help. And when there are differenc ••
of opinion, they are stated largely without emotion. Ana a. far as I
could s.a, thera were no fighta. There weta 80me disagreements, but
that's what the meetings are all about.
Tbank you very mUCh.
TBE PRESS,

Thank you.
6:39 P.M. COT

TREASURY NEWS

Dillartment of the Treasury • Washing_II, D.C •• Telephone 5&&-204'

EMBARGOED FOR RELEASE UNTIL DELIVERY
EXPECTED AT 11 ~.M., EDT
STATEMENT OF KENNETH W. GIDEON,
ASSISTANT SECRETARY (TAX POLICY),
DEPARTMENT OF THE TREASURY
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT
COMMITTEE ON WAYS AND MEANS
UNITED STATES HOUSE OF REPRESENTATIVES
WASHINGTON, D.C.
JULY 12, 1990
Mr. Chairman and Members of the Subcommittee:
It is a pleasure to be here today to discuss tax compliance
issues presented by the operation of foreign-owned businesses in
the United States.
We understand that this Subcommittee is
particularly interested in whether U. S. subsidiaries of foreign
companies are paying their fair share of U.S. tax.
This is part
of the broader issue of related-company transfer pricing problems
that may arise for both inbound and outbound transactions.
I.

OVERVIEW OF THE ISSUE

The focus of this hearing is generally on compliance issues
presented by Internal Revenue Code ("Code") section 482.
This
inquiry involves a review of the Internal Revenue Service's
ability to obtain adequate information relevant to intercompany
transfers of goods and services and to conduct effective audits
of such transactions.
As you know, Code section 482 gives the Internal Revenue
Service the authority to distribute, apportion, or allocate gross
income,
deductions,
credits,
or allowances
between
related
entities in order to prevent evasion of taxes or clearly to
reflect their income.
This authority is necessary to prevent
taxpayers
from structuring transactions
in a manner which
artificially shifts items of income or deductions to those
affiliates that can benefit most from such items.
In particular,
section 482 is necessary to block the artificial transfer of
taxable income to foreign affiliates outside of the U.S. tax
jurisdiction.

NB-871

-2As Commissioner Goldberg has testified in detail, there are a
number of possible' scenarios for such artificial transfers of
income.
Examples include manipulation of the transfer prices at
which goods are sold between related parties,
provision of
services which would not be offered between unrelated parties in
comparable transactions, and payment of excessive deductible
payments.
Current regulations under section 482 test such
transactions by applying the internationally accepted "arm's
length" standard.
Thus the regulations authorize an adjustment
of intercompany transactions to the extent they differ from the
results which would have been negotiated by unrelated parties.
Such adjustments are generally made by reference to comparable
transactions
between
unrelated
parties.
Where
comparable
transactions are not available, the regulations use other methods
to approximate arm's length results.
In the Tax Reform Act of 1986, Congress amended section 482
to address particular difficulties presented by the transfers of
intangible property.l
This change in the statute applies to all
transfers of intangibles.
In the legislative history describing
the change, however, Congress indicated its particular concern
with cases involving transfers of highly profitable intangibles
to offshore affiliates where the payments returned to the U. S.
were insufficient in comparison to the income earned from the
intangible by the foreign transferee.
In addition, Congress
suggested that a comprehensive study of intercompany pricing
rules should be conducted and that consideration should be given
to possible modification of the regulations under section 482.
In October of 1988, the Treasury and the Internal Revenue
Service published a joint discussion draft of this issue, "A
Study of Intercompany Pricing" (the "whi te Paper").
That study
emphasized the need to maintain the current "arm's length"
standard under the section 482 regulations, but proposed new
methods for applying that standard in cases of transfers of
intangible property.
We have recei ved voluminous comments from
taxpayers, academics, and foreign governments in response to the
White Paper and we are participating in ongoing dialogues with
interested parties
to develop acceptable
approaches.
The
Treasury Department is also working closely with the Internal
Revenue Service in developing proposed regulations to implement
certain of the suggestions made in the White Paper.
The focus of this Subcommittee today,
U.S. subsidiaries are paying their fair
course the reverse of the problem presented
of intangibles which Congress addressed
contrast illustrates an important principle
1

whether foreign-owned
share of tax, is of
by outbound transfers
in 1986.
Yet this
any changes to our

Section 482 was amended by adding the sentence, "In the case of
any transfer (or license) of intangible property (within the
meaning of section 936(h)(3)(B), the income with respect to
such transfer or license shall be commensurate with the income
attributable to the intangible."

-3-

J[lethods for determining the "fair" distribution of income among
affiliated entities' must be balanced and reasonable.
Overextension of our rules to prevent perceived abuses in cases of
outbound transfers by u.s. companies would seriously jeopardize
our tax collections from the inbound investments of foreign
companies.
For example, if new methods for determining transfer
prices in the section 482 regulations overcompensate u.s. parent
companies
for
transfers
of
property
to
their
offshore
subsidiaries, these methods when applied to foreign parents of
u.s. subsidiaries would exacerbate the very problem which this
Subcommittee is examining today.
Indeed, given the magnitude of
united states investment abroad, all of us concerned with
transfer pricing questions must keep in mind that United states
actions with respect to cross-border transactions must be viewed
as being fair and in accordance with international norms.
Otherwise, foreign governments can be expected to respond to
protect their interests against unilateral United States actions
which those governments deem inappropriate.
It is important to recognize, therefore, that there are no
quick statutory or regulatory solutions which would make section
482 cases easy to resolve. It is also important to remember that
transfer pricing is an issue with respect to outbound as well as
inbound investment.
Nevertheless we believe that important
developments at the audit level and new compliance rules which
were introduced last year will make substantial positive
improvements in the IRS'S ability to process transfer pricing
cases in the context of foreign-owned companies.
Before
discussing those initiatives, I will review some of the available
statistics relating to the performance of these companies and
consider their implications in the area of tax compliance.
II.

STATISTICAL REVIEW OF COMPLIANCE BY FOREIGN-OWNED COMPANIES

Total foreign direct investment in the u.s. has increased
rapidly over the last decade, whether measured by the equity and
debt provided by foreign direct investors to their u.s.
aff ilia tes (the balance of payments measure of foreign di rect
investment) or by the total assets owned by these affiliates.
More specifically, the assets of foreign-owned u.s. corporations
have grown from $205 billion in 1979 to $959 billion in 1987, or
about 6 percent of the total assets of all u. s. corporations. 2
2

The nearly $960 billion 1987 level of assets of these foreigncontrolled u.s. corporations was financed by about $235 billion
in equity and loans from their foreign parent corporations,
with the balance provided by minority equity owners (about $50
billion) and unrelated creditors (about $675 billion).
The
$235 billion balance of payment measure, together with another
$35 billion in equity and debt invested by foreign parent
corporations in unincorporated U. S. affiliates, accounts for
the total $271 billion in foreign direct investment reported
for 1987.
This balance of payments measure of foreign direct
investment has grown to $329 billion in 1988 and to $401
billion in 1989.

-4-

Concern has been expressed over the fact that despite the
corresponding growth in the revenues received by these companies
-- from $242 billion in 1979 to about $687 billion in 1987 (or
about 7 percent of the total receipts of all u.s. corporations)-their income as reported for tax purposes has not shown similar
growth.
Indeed, over the 1979-1987 period, their net income (as
measured by the excess of their total revenues over total
deductions, increased by certain items of constructive taxable
income and reduced by tax-exempt income) has fluctuated from a
high of $6 billion in 1979 to a low of -$1.5 billion in 1986.
In this section, statistics based on the 1987 tax return data
as compiled by the Statistics of Income Division (501) of the
Internal Revenue Service are used to examine the extent to which
aggressive transfer pricing and other tax accounting practices
may have been used by these firms to reduce their corporate tax
payments.
While the 501 data can be particularly helpful in
suggesting magnitudes, the limitations of using the data for this
purpose should be recognized.
The extent to which any specific
company may have engaged in such practices can only be determined
from a detailed audit examination of the tax and other accounting
records of the company, including a detailed review of its
transactions with related parties.
A comparison
of
the
return
earned
by
mul tinational
corporations with the returns earned by their related suppliers
might provide the most di rect indication of the presence of
potential transfer pricing problems.
Although the SOl data
allow such comparison for u.S. multinationals, the required
information is not available for foreign multinationals.
The
statistics for foreign-controlled u.S. corporations are instead
compared to the corresponding statistics for U.S.-controlled
firms.
To the extent aggressive transfer pricing practices are
used by U.S.-controlled corporations, such comparative analysis
may be less helpful in gauging the extent to which such practices
are also used by foreign-controlled firms.
A.

Low Overall Profitability

As noted, one of the most striking aspects of the rapid
increase in direct foreign investment is the rather low net
income reported by foreign-controlled U.S. corporations. Exhibit
1 presents information on the gains and losses of foreign and
u.s. controlled corporations (as measured by total receipts less
total deductions). It also presents information on the assets of
these companies and on the tax accounting rate of return (as
measured by the ratio of the gains or losses to the assets) for
eac~ of the industries in which this Subcommittee has expressed
~n ,lnterest.
The statistics presented in Exhibit 1 generally
ln~lcate that the low overall profitability does not
reflect
unlformly poor performance by all
foreign-controlled u.s.
corporations.
Rathe r, some foreign-controlled U.s. corporations
are as profitable as many U.S.-owned firms.
However the
proportion
of
firms
that
incur
losses
is
higher
for

-5-

foreign-controlled firms. Exhibit 1 also shows that this overall
tendency is present'in most (but not all) separate industries.
Except
for
motor
vehicles
(retail)
and
sporting
goods
(wholesale) ,
foreign-controlled
U. S.
corporations
have,
on
average,
lower
rates
of
return
on
assets
than
their
U.S.-controlled counterparts.
It might be tempting to infer from these data that foreigncontrolled U.S. firms are practicing aggressive transfer pricing.
Why, otherwise, would they accept such apparently unattractive
rates of return on their invested capital?
However, the
interpretation of data such as that included in Exhibit 1 must be
done with extreme caution. While aggressive transfer pricing may
be one explanation, other factors such as start-up expenses,
acquisition indebtedness,
the age of the
investment,
the
experience and skills of the management, the specific type of
product being produced, and the nature of the manufacturing
process also affect the observed returns.
In short, careful
analysis of more detailed firm-specific data is needed to
understand the precise significance of the industry aggregates
presented in Exhibit 1.
This caveat also applies to all of the
other data presented in this section.
B.

Lower Gross Profit Ratios

In Exhibit 2, the ratios of gross profit (i.e., gross
receipts less cost of sales and operations) to gross receipts (or
sales) are noted. If foreign-controlled corporations pay their
related foreign suppliers more for the goods acquired than would
be paid in an "arm's length" transaction,
this would be
consistent with a lower gross profit ratio. Exhibit 2 shows that
the gross profit ratios for foreign-controlled corporations are
indeed much lower than those for U.S.-controlled corporations.
On average,
the gross profit ratio for foreign-controlled
corporations is about 69 percent that for U.S.-controlled
corporations, and for firms engaged in the motor vehicle
wholesale trade (SOl industry code 5010) it is half that for
U.S.-controlled firms.
C.

Comparable Interest And Depreciation Expense Ratios

To explore whether foreign-controlled corporations might
engage in greater "earnings stripping" (i .e., the reduction in
taxable income through the use of leverage, especially that
provided by related creditors), the ratio of their interest
expense to their net income before interest (total receipts plus
interest paid less total deductions) and to thei r assets are
noted in Exhibit 3.
Because the interest expense used in these
calculations is that paid to all creditors, and not just that
paid to related creditors, these ratios suggest, but do not
confirm, utilization of "earnings stripping".
The results are
ambiguous.
When measured with respect to the income before
interest expense, the statistics indicate that on average
foreign-controlled corporations operate with somewhat greater

-6leverage than U. S. -controlled corporations.
For fi rms in so~e
industries,
parti~ularly
consumer electronics and electron1c
components manufacturing (501 industry codes 3665 and 3670,
respectively), this difference is particularly noticeable.
However, when measured against the assets employed, with
certain exceptions the foreign-controlled corporations appear to
use less leverage.
By this measure, which may be more reflective
of the financial structure of the fi rms, the degree of leverage
used by foreign-controlled firms engaged in consumer electronics
manufacturing (SOI industry code 3665) does not appear to be very
different from that used by U.S.-controlled firms,
although
foreign-controlled firms in the motor vehicle wholesale trade do
appear
to
use
a
greater
degree
of
leverage
than
their
U.S.-controlled counterparts.
The potentially higher depreciation expenses associated with
the start-up of thei r U. 5. operations has been suggested as a
possible reason for the lower profitability of foreign-controlled
U.5. corporations.
These higher charges are assumed to arise
either from the more recent acquisition of their depreciable
assets or the step-up in basis allowed in certain take-overs.
To
investigate
this
possibility,
the
ratios
of
the
reported
depreciation expense to total assets of the U.S.- and foreigncontrolled corporations are also noted in Exhibit 3.
As may be
seen, with the possible exception of firms engaged in motor
vehicle manufacturing (501 industry code 3710), the foreigncontrolled corporations do not appear to have appreciably higher
depreciation expenses per dollar of assets.
D.

Lower Taxes Paid Per Dollar of Receipts

Exhibit 4 provides information on the total receipts, the tax
liabilities
(after
credits),
and
the
ratios
of
the
tax
liabilities to total receipts reported by foreign-and U.S.controlled
corporations.
On
average,
foreign-controlled
corporations paid less taxes per dollar of receipts than did
U.S.-controlled corporations.
However,
profitable
foreigncontrolled corporations paid about $4.6 billion in taxes in 1987.
Moreover, in two industries -- the motor vehicle wholesale and
reta~l trades (SOl industry codes 5010 and 5515, respectively) -fore1gn-controlled corporations paid more per dollar of total
receipts than did U.S.-controlled corporations.

E.

Conclusion

Whi1 7

aggressive transfer priCing practices may be one
for the data presented in Exhibits 1-4, the evidence
1S not conclusive because firm-specific
factors other than
transfer
pricing
may
account
for
the
results
noted.
Nevertheless, on the basis of these aggregate figures, it would
seem appropriate to scrutinize carefully the transfer pricing
practices of foreign-controlled U.S. firms.
~xplanat1on

-7-

III.

INITIATIVES TO ADDRESS THE PROBLEM

Each comparison of related party transactions to the "arm's
length" norm requires a thorough analysis of all the relevant
facts and circumstances.
Two factors are essential in order to
process these cases in a manner which is fair to both the
government and the taxpayer:
a significant commitment of
personnel and broad access to the relevant data. We believe that
major progress has been made in recent years with respect to both
of these factors in the context of foreign-owned corporations
operating within the United States.
A.

Increased Audit Activity

As Commissioner Goldberg explained, the Internal Revenue
Service has for several years been increasing its review of
foreign-owned companies, with particular emphasis on the transfer
pricing practices between U.S. companies and their foreign
affiliates.
We are encouraged by the heightened audit activity
which has resulted from these efforts and expect that such
scrutiny will encourage compliance with international transferpricing standards.
The Internal Revenue Service's continued expansion of its
Industry Specialization Program should also have a positive
impact on audits in the international area.
That program has
successfully created groups of attorneys and agents to serve as
focal points within the Service where issues involving specific
industries or transaction types can be developed and analyzed.
Attorneys from Chief Counsel (International) and international
examiners participate in any of these groups when international
tax issues arise.
One factor which makes the audit of cross-border transactions
difficult is the need for cooperation among the tax administrators of the di fferent governments.
For example, a parent
company that manufactures products in a high tax jurisdiction for
distribution and sale by its United States subsidiary might route
its transactions through a corporation in a low-tax jurisdiction.
In this case, both the country of manufacture and the United
States have an interest in preventing the shifting of profits
into the low-tax country affiliate.
For this reason, the
Internal Revenue Service is actively pursuing simultaneous
examinations where both countries cooperate in the audit of a
single group of related taxpayers.
Such intergovernmental
cooperation should be encouraged and expanded to reach more
taxpayers and involve more countries.
B.

Legislative Changes to Tax Compliance Rules

Recent legislation has made substantial changes to the rules
affecting tax compliance of foreign-owned companies.
With
respect to access to information, the Revenue Reconciliation Act
of 1989 ("the 1989 Act") included, with our support, important

-8amendments to the
reporting and record-keeping
requirements
applicable to tran~actions between foreign-owned corporations and
their overseas affiliates.
One of the principal problems in reviewing transactions
between U.S.
subsidiaries
and
their
foreign
affiliates
is
providing the international examiners with access to all relevant
data.
Adequate information with respect to such transactions is
required at each stage of the process:
information reporting
with
the
tax
return
facilitates
audit
screening;
record
maintenance requirements ensure that documents related to intercompany transactions are retained for review; and effective
summons authority makes such documents available where the
taxpayer fails to comply with initial requests.
In many cases
involving
related party
transactions
of
foreign-owned U. S. corporations, adequate information has been
difficult to obtain.
Proper allocation of income among such
related companies often requires the review of documents which
are in the sole custody of the foreign owner.
Moreover, the
extent to which courts will uphold the IRS's summons power over
foreign-based documents depends on the particular facts presented
and can be unclear 3under current case law, at least prior to
recent
legislation.
Even
where
a
summons
is
legally
enforceable, records may not be available due to the foreign
owner's having not maintained relevant documents.
Information reporting for audit screening purposes has also
been insufficient in certain cases.
Under pre-1989 law, Code
section 6038A required reporting of information with respect to
related party transactions only in the case of U.s. subsidiaries
(or foreign corporations engaged in aU. S. business) that were
controlled by a foreign person.
For this purpose, "control" was
defined as at least 50 percent stock ownership by a single
foreign person.
This ownership test, however, omitted cases
where actual control was exercised by substantial foreign owners
but 50 percent of the stock was not held by a single foreign
person.
Congress determined last year that these compliance
record-keeping
provisions
were
inadequate
to
provide
information needed in this area.
As a result, the 1989
substantially amended Code section 6038A to strengthen
record-keeping
and
compliance
provisions
applicable
foreign-owned entities.
3

United States v. Toyota Motor Corp., 561
Cal.), 569 F. Supp. 1158 (C.D. Cal. 1983).

F.

Supp.

354

and
the
Act
the
to

(C.D.

-9-

Under the 1989 Act, the threshold for application of Code
section 6038A is reduced to 25 percent stock ownership by a
single foreign person.
In addition, foreign-owned corporations
are now required to maintain such records prescribed in
regulations which are appropriate to determine the correct tax
treatment of related party transactions.
To ensure access to
relevant documents, foreign affiliates are required to designate
the u.s. taxpayer as their limited agent solely for purposes of
service of any IRS summons relating to intercompany transaction
records.
The 1989 Act also increases the monetary penalties for
noncompliance with information reporting and record maintenance
requirements.
In addition, where a summons is not substantially
complied with (or the related party fails to authorize its u.s.
agent to receive a summons) the 1989 Act gives the Secretary of
the Treasury the discretion to determine the deductions allowed
and costs of any property attributable to transactions with that
foreign related party.
Several significant procedural protections are incorporated
into these new provisions.
Taxpayers are granted expedited
access to federal court to quash a summons and to challenge the
government's determination that they have not substantially
complied with a summons. The appointment of the u.s. corporation
as an agent will not subject documents or wi tnesses to legal
process for any purpose other than determining the correct tax
treatment
of
intercompany
transactions.
Moreover,
where
information exchange provisions under our bilateral tax treaties
are
adequate
to
protect
the
government's
interest,
the
legislative history notes that the IRS will be expected to use
the treaty procedure before the expanded summons power.
We believe that these provisions, as finally enacted, reflect
the United States' legitimate interests in monitoring and
adjusting the tax effects of intercompany transactions between
u.s. corporations and their foreign owners. Foreign subsidiaries
of u.S. corporations are required to supply similar information
and are subject to comparable penalties for noncompliance.
We intend to implement these recent statutory changes so that the
overall effect of these compliance measures is to treat
foreign-owned u.S. companies in a manner which is comparable to
the treatment of U.S.-owned companies, recognizing that some
differences
in method may be necessary where
information
pertinent to a u.S. tax examination is controlled by a non-U.S.
person.
I

In addition, the 1989 Act provides significant new "earnings
stripping" rules which limit the ability of domestic tax-exempt
and foreign owners to reduce the taxable income of their U.S.
subsidiaries through payments of "interest" where such cash flows
are more properly characterized under arm's length principles as
nondeductible returns on equity.
We believe that such measures

-10to
enforce
reasonable
thin
capitalization
consistent with ihternational norms and the
obligations under its bilateral tax treaties.

principles
are
united States'

We a re cur rently reviewing publ i c comments wi th respect to
the amendments to section 6038A and the new "earnings stripping"
provision.
Regulations to implement these provisions have been
given a high priority by both the Treasury Department and the
Internal Revenue Service.
C.

New Compliance proposals

Additional legislation has recently been proposed to enhance
the compliance rules applicable to foreign-owned companies. H.R.
4308 and S. 2410.
Wi th respect to the proposed change to apply
the amendments to section 6038A to all open tax years, we note
that similar effective date provisions have been used for other
amendments to procedural requi rements.
Further, the proposed
change to apply similar rules to foreign-owned u.S. branches is
designed to conform the rules for foreign branches and foreign
subsidiaries.
The Administration does not oppose these two
suggested changes to the current tax compliance rules.
We stand
ready to work with the Congress on these proposals to assure that
they apply fairly and that taxpayers can reasonably comply.
It
is important that the burden on u.s. branches not be materially
different
from
that
on
u.s.
subsdidiaries
of
foreign
corporations.
Also,
the
focus
should be on maintaining
information, rather than increasing the reporting burden.
Fo r each new change to ou r compl i ance rul e s , howeve r, ou r
obligations under bilateral treaties and the basic requirements
of fair play require that we maintain comparable treatment
between foreign-owned entities and U.S.-owned entities.
In
addi tion, the u. s. should not be advocating new rules to be
imposed
on
foreign
multinationals
which
we
would
find
objectionable if applied to our own companies by another
government.
We recognize of course that the difficulties
encountered in audits of foreign-owned entities prohibit absolute
identi ty of our procedural rules.
Nevertheless, the overall
record-keeping
and
compliance
requirements
applicable
to
foreign-owned companies must remain comparable with the standards
we impose in the context of U.S.-owned companies.
For this reason, we oppose new proposals which would impose
additional requirements in 4 a discriminatory manner in violation
of our treaty obligations.
For example, one proposal in H.R.
4

We also oppose the proposal in the same pending bills to tax
capital gains of certain foreign shareholders; however, this is
a substantive change in law which we view as beyond the scope
of this hearing.

-11-

4308 would extend the statute of limitations where taxpayer delay
has impeded a timely assessment of tax, but only in the case of
foreign-owned companies.
If such a change to the statute of
limitations makes sense, it should be applied for both domestic
and foreign-owned companies.
We must note, however, that
competent authority proceedings to adjust double
taxation
questions between the IRS and foreign revenue authorities are
already hampered in some cases by expired statutes of limitations
in the foreign jurisdiction, and a longer u.S. statute may
exacerbate this problem. On the other hand, before the enactment
of section 6038A last year, taxpayers appeared to be increasingly
unwilling to extend the statute voluntarily in circumstances
where, because of less than full cooperation in document
production, such an extension would be appropriate.
Given the
procedural complications which could arise from a change in the
statute of limitations, Congress could appropriately defer action
on the proposed extension to allow time to assess the impact of
last year's changes in section 6038A.
This seems particularly
appropriate if those changes are made applicable to open years.
In sum, we believe that the ongoing efforts at the audit
level and the new compliance measures enacted in 1989 should
produce positive results in terms of tax compliance.
We would
urge that these new developments be given adequate time to work
before introduction of major new initiatives.
In addition, we
must keep in mind that cross-border transactions, by definition,
affect the taxing authority and interests of at least one other
country.
Our actions in this area -- which affect both u.S.
investment abroad and foreign investment in the u. S.
must
withstand the test of fairness and must adhere to international
standards if u.S. businesses are to continue to enjoy the
benefits
of
cooperative
relationships
between
the
fiscal
authorities of other countries.

Exhibit 1
1987 Income, Assets, and Rates of Return for Foreign- and U.S.-Controlled
U.S. Corporations, by Industry and Profitability
Industry
I.

Foreign-Controlled
Gain Cos. Loss Cos.
Total

U.S.- Controlled
Gain Cos.
Loss. Cos.

1

Total

Income (in $ millions):2

(181)
(337)
(119)
(399)
(11,504 )

(381)
502
41
63
200
(135)
(9)
72
5,083

6,466
933
1,457
626
1,134
4,197
289
1,242
349,511

(2,005)
(262)
(733)
(63)
(407)
(1,595)
(376)
(385)
(91,403)

4,461
671
724
563
726
2,601
(87)
857
258,108

19,388

(13,952)

5,436

365,855

(97,229)

268,626

Motor vehicles (manufac.)
Motor vehicles (wholesale)
Motor vehicles (retail)
Household appliances (manufac.)
Consumer electronics (manufac.)
Electronic component (manufac.)
Sporting goods (wholesale)
Electrical goods (wholesale)
All other

2,023
14,646
1,004
1,863
6,790
2,979
2,483
10,025
508,850

4,720
13,156
100
125
2,901
2,258
843
3,877
380,750

6,743
27,802
1,104
1,989
9,691
5,237
3,326
13,903
889,600

196,832
12,855
31,930
7,133
14,255
55,835
2,903
16,040
9,551,812

174,925
3,470
15,855
2,611
3,884
16,101
1,277
3,146
2,723,970

371,756
16,325
47,785
9,744
18,139
71,936
4,179
19,186
12,275,782

Total

550,664

408,730

959,394

9,889,594

2,945,239

12,834,833

Motor vehicles (manufac.)
Motor vehicles (wholesale)
Motor vehicles (retail)
Household appliances (manufac.)
Consumer electronics (manufac.)
Electronic component (manufac.)
Sporting goods (wholesale)
Electrical goods (wholesale)
All other

47
1,475
46
69
380
202
110
472
16,586

Total
II.

(428)
(973)
(5)
(6)

Assets (in $ millions):

Exhibit 1 (continued)
1987 Income, Assets, and Rates of Return for Foreign- and U.S.-Controlled
U.S. Corporations, by Industry and Profitability
Industry
III.

Foreign-Controlled
Gain Cos. Loss Cos.
Total

U.S.-Controlled
Gain Cos.
Loss. Cos.

1

Total

Rate of Return (in percent):

Motor vehicles (manufac.)
Motor vehicles (wholesale)
Motor vehicles (retail)
Household appliancess (manufac.)
Consumer electronics (manufac.)
Electronic components (manufac.)
Sporting goods (wholesale)
Electrical goods (wholesale)
All other
Total

2.35
10.07
4.62
3.70
5.60
6.77
4.44
4.70
3.26

(9.07)
(7.40)
(5.04)
(4.67)
(6.23)
(14.91)
(14.12)
(10.30)
(3.02)

3.52

(3.41)

1. 20

(5.65)
1.80
3.74
3.18
2.06
(2.58)
(0.26)
0.52
0.57

3.29
7.26
4.56
8.78
7.95
7.52
9.97
7.74
3.66

(1.15 )
(7.54 )
(4.62)
(2.41)
(10.49)
(9.91)
(29.46)
(12.23)
(3.36 )

4.11
1. 51
5.78
4.00
3.62
(2.08)
4.47
2.10

0.57

3.70

(3.30)

2.09

Department of the Treasury
Office of Tax Analysis

June 18, 1990

1

Only data for U.S.-controlled corporations filing a form 1120, 1120A, 1120L, and 1120PC (for industry
code 6359) are included in these Exhibits. Data for corporations filing a Form 1120S, 1120F,
lI20-IC-DISC, I120-FSC, 1120-RIC, 1120-REIT, and l120PC (for industry code 6356) are excluded.

2

Income is measured by total receipts less total deductions.

Exhibit 2
1987 Gross Profit Ratios for Foreign- and U.S.-Controlled
U.s. Corporations, by Industry (in percent)1

Industry

ForeignControlled

U.S.-

Controlled

Motor vehicles (manufac.)
Motor vehicles (wholesale)
Motor vehicles (retail)
Household appliances (manufac.)
Consumer electronics (manufac.)
Electronic component (manufac.)
Sporting goods (wholesale)
Electrical goods (wholesale)
All other

15.78
11.06
13.95
25.54
40.50
21.90
24.05
19.82
25.68

19.98
22.10
12.85
29.61
36.51
34.26
25.61
25.00
36.38

Total

23.88

34.76

Department of the Treasury
Office of Tax Analysis

1

June 18, 1990

Ratio of gross profit (gross receipts less cost of goods
and operations) to sales (gross receipts).

Exhibit 3
1987 Ratios of Interest Expense to Earnings Before Interest and Assets and Depreciation Expense to Assets,
for Foreign- and U.S.-Controlled U.S. Corporations, by Industry (in percent)

Industry

Interest to Earnings 1
ForeignU.S.Controlled
Controlled

Interest to Assets
U.S.ForeignControlled
Controlled

Depreciation to Assets
ForeignU.S.Controlled
Controlled

Motor vehicles (manufac.)

82.06

69.97

3.27

4.37

5.78

4.62

Motor vehicles (wholesale)

46.44

36.28

Motor vehicles (retail)

48.48

3.21
4.25

Household appliances (manufac.)

36.53
38.21

58.33
32.49

4.58
3.92
2.05

3.07

4.54
3.92
4.38

4.11
4.66
3.72

2.10
2.18

4.63
4.47

5.80

3.79
3.44

1. 76

2.94
2.83

3.80

2.00
1.89

1. 97

3.81

2.04

2.08

Consumer electronics (manufac.)

51.93
48.28

25.94

2.38
4.19

35.47

3.09

34.75

All other

46.42
67.49

60.42

2.98
3.71

Total

65.54

60.21

3.71

Electronic component (manufac.)
Sporting goods (wholesale)
Electrical goods (wholesale)

24.58

Department of the Treasury
Office of Tax Analysis

1

Earnings before interest measured by total receipts plus interest paid less total deductions.

4.83

June 18, 1990

Exhibit 4
1987 Tax After Credit, Total Receipts, and Ratios of Tax After Credit
to Total Receipts for Foreign- and U.S.-Controlled U.S. Corporations, by Industry

Industry
Motor vehicles (manufac.)
Motor vehicles (wholesale)
Motor vehicles (retail)
Household appliances (manufac.)
Consumer electronics (manufac.)
Electronic component (manufac.)
Sporting goods (wholesale)
Electrical goods (wholesale)
All other
Total
Department of the Treasury
Office of Tax Analysis

Tax After Credits
Total Receipts
ForeignU.S.ForeignU.S.Controlled
Controlled
Controlled
Controlled
-----------------(in $ millions)--------------10
586
12
14
72
63
33
135

1,961
295

6,325
68,328

371
217

3,070
3,452
8,542

250
973
82

351,073
41,196
181,739
10,714
22,924
83,119
8,802
43,065

Tax A.C. to Receipts
ForeignU.S.Controlled
Controlled
------(percent)-----0.16

0.56

0.86
0.38

0.72
0.20

0.41
0.84
0.71
0.50

2.03
1.09
1.17

3,636

389
75,319

8,898
6,684
24,925
556,560

6,930,335

0.54
0.65

4,561

79,858

686,786

7,672,966

0.66

0.94
0.90
1.09
1.04
June 18, 1990

PUBLIC DEBT NEWS
Department of the Treasury •

IMMEDIATE RELEASE
July 12, 1990

Bureau of the Public Debt • Washington, DC 20239

CONTACT:

Office of Financing
202/376-4350

TREASURY SETS BID LIMITS
ON MARKETABLE SECURITY AUCTIONS
The Treasury announced today that it has set a limit on the
amount a single bidder in securities auctions can tender at a
single yield. A bidder may tender for a Treasury bill, note, or
bond at multiple yields, but, at anyone yield, the Treasury will
not recognize amounts tendered in excess of 35 percent of the
public offering. Tenders that exceed the 35 percent limit at any
one yield will be reduced to the 35 percent amount.
For bills,
the public offering is the announced offering amount excluding
securities allotted to the Federal Reserve and to foreign
official institutions.
For notes and bonds, the public offering
is the announced offering amount.
Prior to the change, bidders could tender for amounts in
excess of the 35 percent limitation at any particular yield in
order to maximize their award should this yield prove to be the
highest yield accepted in the auction. This modification of
Treasury auction bidding procedures is designed to improve the
competitiveness of Treasury securities auctions and reduce the
cost of financing the public debt.
The maximum amount that anyone bidder may purchase in a
bill, note, or bond auction (at all yields) continues to be 35
percent of the public offering, a restriction that has been in
effect since september 1981.

PA-16

TREASURY NEWS

Dellanment of the TreaSUry • Wasliington, D.C. , Te,.aphone 588-2041

FOR RELEASE UPON DELIVERY
EXPECTED 2:00 P.M.
Statement of the Honorable
Nicholas F. Brady
Secretary of the Treasury
Before the
Senate Committee on Banking, Housing, and Urban Affairs
July 12, 1990
Chairman Riegle, Senator Garn, Senator Dodd, Senator Heinz,
and members of the Committee:
Thank you for this opportunity to present the
Administration's legislative proposal affecting the stock and
stock index futures markets, S.2814, "The capital Markets
Competition, Stability, and Fairness Act of 1990." I believe
this legislation is important, and I urge its immediate passage.
Why do we need change? There are a number of reasons. We
have experienced repeated, violent drops in the stock market in
the absence of any significant news events. We have done little
to respond, and as a result, we are taking a chance with the
very essence of the system, the clearance and settlement process.
Perhaps most important, we have damaged the confidence of
individual investors -- I strongly believe that any market system
that disillusions and disenfranchises the individual investor
will lose its political standing, and in the end its greatest
strength.
Let me be specific.
Three weeks ago on Friday, June 22, 1990, in the last few
minutes of trading, the stock market plunged 64 points on no
significant news. Sell programs kicked in shortly after 3 p.m.,
and in the last half hour of trading accounted for more than half
of S&P 500 trading volume.
On Friday, October 13, 1989, the Dow Jones Indust~ial
Average fell 191 points. Almost 90 percent of the drop occurred
in the last 90 minutes of trading, supposedly triggered by news
of a failed takeover attempt for a single company. The
following Monday, October 16, the market lost 63 points in the
first 40 minutes of trading, then sharply rebounded to close 88
points up on the day. A week later, on October 24, 1989, the
NJ;h·872

2
S&P 500 index dropped 2.7 percent (roughly 90 Dow points) and
the price of the S&P index futures contract dropped 3.2 percent
in slightly over one hour of trading.
And in october of 1987 the Dow Jones Industrial Average lost
almost a third of its value -- $1.0 trillion -- in just four
days.
This included the one-day drop of 508 points, or 22.5
percent, the largest recorded amount since Dow Jones started
computing index numbers in 1885. Moreover, the very real
prospect of clearinghouse failures in the wake of this cras~ led
to a crisis of confidence that brought the system to the brlnk of
breakdown. While we all remember these consequences, few can
remember what caused them.
Indeed, in each of these episodes, minor, even untraceable,
events appear to have triggered precipitous, violent market
declines. Each episode occurred in the last three years, when
stock index futures have been actively trading in large volumes.
And each episode constituted a major market disruption, a period
when the markets for stocks and stock index futures disconnect
with prices spiraling down.
These major market disruptions create clear and obvious
risks to the system. But they also turn off individual
investors, who feel the whole system is stacked against them.
Those who are in the best position to judge the mood of the
individual investor -- the stock exchanges and the large retail
brokerage houses like those who testified yesterday -- report a
growing disillusionment with the stock market by such investors.
This trend is disturbing.
Individuals bring to the market a
diversity of views, which are a source of stability -- indeed,
individuals were net buyers during last october's downdraft and
appeared to stop the market from plunging even further.
More
importantly, political support for our free market system rests
on the foundation of broad-based individual ownership. As I said
before, when markets operate to disenfranchise the individual
investor, they lose that political standing and in the end their
greatest strength.
Let me emphasize that when I use the term "major market
disruption," I am not talking about increased volatility, an
issue so popular with economists. critics charge that there is
no compelling evidence of increased stock market volatility or
average price swings. They may be right, but the focus on
volatility is a red herring. Our concern is not average price
changes, but the episodes of violent market freefalls.
During
these major market disruptions, pricing relationships between
stocks and futures break down: markets in particular stocks
experience difficulties in staying open: serious supply-demand
imbalances develop: and very large market moves occur in the
absence of underlying fundamental information.

3

These sudden declines unrelated to changes in underlying
fundamental information are a new market phenomenon. In the
past, large market moves were relatively infrequent and
associated with news events that clearly affected fundamental
values.
For example, in the 42 years between 1940 and 1982 (the year
stock index futures began trading) the Dow Jones Industrial
Average declined by more than 6 percent on only three occasions:
when the Germans took the Netherlands in May of 1940 (6.8
percent); when they encircled the Allied forces at Dunkirk just
days later in the same month (6.8 percent); and when President
Eisenhower suffered a heart attack in September of 1955 (6.5
percent).
By contrast, with the growth of stock index futures trading,
such massive one-day selloffs have occurred four times in the
last three years:
october 19, 1987
October 26, 1987
January 8, 1988
October 13, 1989

22.6
8.0
6.9
6.9

percent
percent
percent
percent

Not one of these days corresponded with any major news events
like the ones before 1982. But they all shared the
characteristic of enormous selling pressure from the stock index
futures markets flowing over to the stock market.
My point is this. stocks and stock index futures are "one
market," linked together by electronics. Movements in the price
of stock index futures are translated almost immediately to
stock prices through index arbitrage, and vice versa. This is
what we concluded in the President's' 1987 Task Force on Market
Mechanisms, and essentially no one -- not academics, not people
on Wall street, not politicians -- has disputed that conclusion.
The Task Force also concluded that the interaction of trading in
stock and stock index futures in the "one market" is a major
cause of market disruptions. Yet the Nation's disjointed
regulatory system has not kept pace with this reality, preventing
us from putting the "one market" tools in place to deal with
these market disruptions.
The single most important step Congress can take to reduce
both the likelihood of major market disruptions and the severity
of their consequences is to unify regulation for the "~ne
market." A single regulator would be able to coordinate the key
intermarket mechanisms that disconnect to create or exacerbate
major market disruptions. While the problem of major market
disruptions would not be magically cured overnight, unified
regulation could at least begin to develop and apply the

4

regulatory tools to control what is too often out of control
the interaction between stock index futures and stocks.
Moreover, I strongly believe that if we fail to ~ome to
grips with regulatory fragmentation, the government w111 have
done precious little in the face of clear evidence that we face a
problem. As I have said before, minor events are likely to
continue to cause major market disruptions -- and major events
could cause even worse results.
Simply stated, we are accepting
too much systemic risk for too little benefit.
The Administration believes that Congress should act by
addressing the regulatory structure for stocks and stock index
futures.
We have proposed legislation with three key provisions.
First, the bill transfers the authority to regulate stock index
futures from the Commodity Futures Trading Commission (CFTC) to
the Securities and Exchange Commission (SEC), but in a manner
specifically designed to create the least disruption to market
participants. Second, it provides federal oversight authority
over the ability of futures markets to set margins on stock index
futures -- not to prevent volatility, but to safeguard the
financial system. Third, the bill modifies the "exclusivity
clause" of the Commodity Exchange Act to end costly and
anticompetitive legal disputes over what constitutes a "futures
contract."
Before I describe the bill in more detail, let me briefly
explain the specific problems that I believe require this
legislative remedy.
Uncoordinated Intermarket Mechanisms
The first of these is the failure to coordinate key
intermarket mechanisms, which would not happen if the "one
market" were regulated as one market. These mechanisms, which we
have described at length in previous testimony, include
unharmonized margins, disjointed clearance and settlement
systems, evasion of short selling restrictions, and uncoordinated
circuit breakers.
Unharmonized Margins.

As you know, while there is federal

over~ight of marg~ns on stock, there is virtually none over
marg1~s

on stock 1ndex futures. The futures exchanges and their
clear1nghouses set these futures margins themselves. The result
is a tremendous disparity in margin levels on stocks and stock
index futures, even though they are part of one market where
margin levels on one instrument can have a direct impact on the
trading and price of the other.
The res~lt has been that futures margins, which have no
federal ove:s1ght, have often dipped to dangerously low levels.
Indeed, Cha1rman Greenspan of the Federal Reserve Board -- the

5

guardian against excessive risk to the financial system -recently expressed his strong concerns to this committee about
the low level of stock index futures margins prior to the minicrash last year.
Again, those who try to dismiss our proposal by claiming
that margins are unrelated to volatility are simply missing the
point. We have never said that average volatility has increased.
Our concern is major market disruptions and how to slow them down
when the tidal wave starts to form -- not volatility.
The Federal Reserve Board agrees with the need for federal
oversight of margins on stock index futures to limit systemic
risk. Indeed, no credible argument has been advanced against
federal oversight -- we must have it where the actions of
private market participants in a narrow segment of the market
create risks for the financial system as a whole. It is a
dangerous practice that's not in the public interest. We ought
to address this unjustified anomaly.
Let me elaborate on the link between margins and systemic
risk. The fact is that futures traders can control large amounts
of stock with little of their own money. Relatively small
amounts of capital can concentrate enormous selling pressure on
the stock market. For example, just prior to the October 13,
1989 break, a professional trader in the futures market with
$50,000 in cash could control roughly $2,000,000 in stock, which
is nearly 10 times more than the $200,000 that a professional
trader in the stock market can control with the same amount of
cash.
Many observers were astounded that, while stock index
futures margins were increased temporarily in the wake of the
October 1987 break, they were soon again lowered, so that margins
were lower in October of 1989 than they were in October of 1987.
Futures margins were 3.6 percent at the opening on Monday,
October 19, 1987. The futures markets raised them to above 12
percent the following week, but then allowed them to drift back
down so that at the opening on October 13, 1989 -- the day the
market dropped 190 points -- they were only 2.2 percent.
Today margins on the S&P 500 futures contract are only about
4 percent, which means that a decline of just 4 percent (about
120 Dow Jones points) faces a futures trader with a choice: he
either has to double his original margin simply to hold an
existing position or sellout, which could put more pressure on a
falling market.
A consequence of low futures margins is that during market
downdrafts, when the system is most in need of liquidity, futures
exchanges are forced to restrict liquidity through increased
margin requirements because margins have been set so low. This

6

is precisely the opposite of what should occur:
during
emergencies it is critical to pump liquidity into the system.
Indeed, Chairman Greenspan testified before this Committee that
during last october's mini-crash he was "shaken" at the prospect
of increasing margins at a time when liquidity was critical.
Let me mention one related point. Our 1987 Task Force
Report showed conclusively that a mere handful of firms created
enormous selling pressure in Chicago that swept back to New York
markets.
For example, on October 19 three firms in the futures
market accounted for the equivalent of $2.8 billion in stock
sales.
In the futures market the top 10 sellers accounted for
sales equivalent to $5 billion, roughly 50 percent of the nonmarket maker total volume.
Low futures margins contribute to this ability of a small
number of traders to concentrate enormous buying and selling
pressure on the stock market.
Disjointed Clearance and Settlement Systems. The most
disturbing consequence of major market disruptions is the risk
they pose to the entire financial system, especially through the
clearance and settlement process. For example, after the October
1987 break, the clearance and settlement system fell over six
hours behind its normal payment times, with over $1.5 billion
owed to investment houses. Had these funds been missing for any
significantly longer time, it could have unleashed a chain
reaction of events spreading losses through the payments system.
The Presidential Task Force concluded that the prospect of
clearinghouse failures reduced the willingness of lenders to
finance market participants, leading to "a crisis of confidence
[that] raised the specter of a full-scale financial system
breakdown." To reduce the possibility of financial gridlock, we
need to have a single regulator for the "one market" who can
facilitate coordination of intermarket clearance and settlement
systems. Little effective coordination has occurred in the
almost three years since the 1987 market break. While
legislation is pending in both the Senate and House to help
address these systems, a single regulator would obviously help
accelerate the coordination process.
Evasion of Short Selling Restrictions.
For over 50 years
the securities laws have restricted bear raiders like the 1920s'
Jessie Livermore from selling short in declining markets. The
pu~ose ~f these restrictions is to prevent "gunning" the market,
wh~ch dr~ves down the market and leaves the individual investor
helpless. However, a concerted selling effort in the futures
marke~ can completely undermine the short selling restriction -and ~n fact, because of low futures margins, can accelerate the
stock market downdraft. Again, it is critical to harmonize these

7

intermarket rules to prevent traders from using one market to
evade restrictions in another market.
Uncoordinated Circuit Breakers. Some progress has been made
to coordinate circuit breakers in stock and stock index futures
markets, and discussions are continuing within the President's
Working Group on Financial Markets. Nevertheless, more can and
should be done. Fundamental disagreements continue to exist
between markets and their regulators over the appropriate kinds
of circuit breakers.
In short, fragmented regulation has impeded progress on the
coordination of these fundamental intermarket mechanisms. We
believe one regulator with appropriate authority could accelerate
progress substantially towards the harmonized regulation we need
to address the problem of major market disruptions. One
regulator is what every other country with important trading in
these instruments has -- the United Kingdom, Japan, and France.
Ineffective Intermarket Enforcement
Another problem created by regulatory fragmentation involves
intermarket enforcement.
with two different regulators, it is sometimes hard to
prevent manipulation and fraud in transactions between the stock
and futures markets. In particular, it is extremely difficult to
detect intermarket "frontrunning," where a trader trades ahead of
his client in one market knowing that the client's trade will
drive a linked market in a particular direction. In fact, at
this time there is not even a universally accepted definition of
illegal frontrunning in the cross-market context. The current
fragmented regulatory system is an open invitation for
intermarket manipulation.
Barriers to Innovation
Apart from major market disruptions and intermarket
enforcement, regulatory fragmentation also is creating a serious
impediment to innovation. This was not always true -- in the
past, fragmented regulation sometimes promoted innovation.
Competition between Chicago and New York markets spurred new
product development, while the practices of different regulators
often promoted diversity, experimentation, and creativity.
But regulatory competition can also cause jurisdictional
squabbles that can strangle innovation. This is precisely what
happened to Index Participation Certificates, which litigation,
prompted by the "exclusivity clause" of the Commodity Exchange
Act, has prevented from trading in the United states.

8

with the globalization of financial markets, other countries
have provided us all the regulatory competition we need. We can
no longer afford jurisdictional conflicts that stifle innovation
at home and drive important business away from u.s. markets.
The Administration's Proposal
To remedy these problems the Administration has proposed the
"Capital Markets Competition, Stability, and Fairness Act of
1990." The bill contains three key provisions.
First, it
transfers the authority to regulate stock index futures from the
CFTC to the SEC.
In order to minimize disruptions to market
participants, the SEC will operate under the basic framework of
the Commodity Exchange Act, augmented with key enforcement and
antifraud provisions from the securities laws.
In addition, the
SEC would have to consider the sufficiency of any existing CFTC
rules as well as the views of the CFTC before adopting its own
rules regarding stock index futures. Moreover, in designating
contract markets for stock index futures, the SEC would have to
consider the fair and efficient operation of the stock index
futures market and the maintenance of fair and orderly markets in
underlying securities.
Taken as a Whole, these provisions will unify SEC regUlation
of the "one market" of stocks, stock options, and stock index
futures in the least disruptive manner. This will enhance
coordination of key intermarket issues such as margins, circuit
breakers, enforcement, and clearance and settlement.
Second, to enhance the safety and soundness of the financial
system, the bill gives the SEC oversight authority over the
futures exchanges' ability to set margins on stock index futures.
The exchanges would still have the flexibility to initiate margin
changes, and the statute would not require minimum margins
levels, which would be left to regulatory discretion. This is
similar to the SEC's current margin authority over stock options.
The result would be that, for the first time since stock
index futures began trading in 1982, the federal government would
have prudential oversight authority over margins on all stock and
stock derivative products. This is crucial to the protection of
the integrity of the nation's financial system.
T~ird, the bill modifies the "exclusivity clause" of the

Commod~ty

Exchange Act to end costly and anticompetitive legal
disputes over what constitutes a "futures contract." Hybrid
equity securities like Index Participation Certificates could
trade in both the futures markets (under the framework,of the
Commodity Exchange Act) and the securities markets (under the
securities laws). Institutional swaps would similarly be
excepted from exclusive CFTC jurisdiction under limited

9

circumstances. The bill would also allow the CFTC to exempt
other financial instruments under certain conditions.
To facilitate transition, the bill does not take effect
until 90 days after enactment, leaving time for the SEC, CFTC,
and stock index futures markets to adjust. Persons, contract
markets and futures associations registered under the Commodity
Exchange Act would be deemed to be registered with the SEC on the
effective date, and rules and interpretations of the Commodity
Exchange Act would continue in effect. To take advantage of
economies of scale, the SEC could enter into cooperative
agreements with the CFTC to administer reparations proceedings
under the Commodity Exchange Act.
Finally, the bill requires the SEC to report to Congress
within 18 months on any additional modifications that are
necessary for the efficient regulation of the "one market" of
stocks, stock options, and stock index futures.
Conclusion
In sum, we believe the Administration's proposal will
accomplish the two major purposes we have in mind. The first is
to reduce both the likelihood of major market disruptions and the
severity of their consequences. The second is to create a market
environment that rekindles the interest of the individual
investor.
Furthermore, the Administration's proposal is not the
proverbial "camel's nose under the tent." The way markets are
now functioning makes no further shifts in regulatory
jurisdiction necessary -- not Treasury bond futures to the SEC,
not a full merger of the SEC and CFTC. I will oppose more
sweeping changes to CFTC authority if the Administration's bill
passes in its present form.
Would the CFTC be rendered a less effective regulatory body
if the bill passes? No. The CFTC would be able to concentrate
its expertise on the more traditional agricultural and financial
futures products that have long been the core of its
juriSdiction. Indeed, our proposal would have minimal effect on
the CFTC because stock index futures represent less than 10
percent of the futures volume under CFTC jurisdiction.
In fact, I believe moving jurisdiction over stock index
futures to the SEC makes it more likely the CFTC will survive as
an independent agency. FUrther episodes of severe market
disruptions could build pressure to merge the CFTC and SEC, as
proposed in the recently introduced Glickman-Eckart bill in the
House of Representatives.

10
Concerns that our bill would strangle stock index futures
also are unfounded.
I expect the changes we propose would
increase investor confidence in the stock index futures markets
and would attract the interest of investors who currently do not
use these instruments.
What impact would our proposal have on the individual farmer
and the agricultural community in general? None whatsoever.
stock index futures simply have no relation to agricultural
products or agricultural futures.
Finally, opponents of the bill have tried to characterize
these issues as nothing more than a turf fight between government
agencies or congressional committees, or a regional battle
between financial centers. Turf is not the issue.
Nor is it a
geographical battle between Chicago and New York.
In fact, some
of the largest traders on the futures exchanges are New York
investment houses. The Treasury Department comes to this issue
with no particular parochial perspective. Our sole objective is
sound public policy -- how best to reduce the likelihood of
violent market disruptions and position our markets for continued
leadership in the face of mounting competition around the world.
Moreover, let me emphasize that the problems I have
described do not come from the CFTC or SEC. These regulators are
doing a good job under impossible circumstances -- trying to
administer a system of regulation that simply is not in concert
with the "one market" reality that exists today.
It is unfair to
expect them to regulate markets effectively without the proper
tools to do so. Our concern, as I have explained, is the few but
critical intermarket issues that are slipping through the
regulatory cracks. Unless properly coordinated through a
coherent regulatory structure, these few issues pose a serious
risk to the financial system.
For the reasons I have outlined, I believe the need to adopt
the legislation we have proposed is urgent.
Mr. Chairman, that concludes my testimony.
I would be
pleased to answer any questions the Committee may have.

* * * * *

TREASUR¥iN EWS

~.lIartm.nt of the T ••• SUrv •

FOR IMMEDIATE RELEASE
JULY 13, 1 99 0

Washington, D.C . • Telellhone •••·204'

CONTACTS:

WASHINGTON-LARRY BATDORF
(202)" 566-2041
BUFFALO-DAVID HOOVER
(716) 846-3053

PROJECT NORTH STAR TO STRENGTHEN U.S.-CANADIAN BORDER
Buffalo, New York - Peter K. Nunez, Assistant Secretary of
the Treasury for Enforcement, today announced Project North
Star, a multi-agency effort to facilitate trade, stop
commercial fraud, and prevent the smuggling of money, drugs,
guns, technology and aliens along the U.S.-Canada border.
While the U.S. and Canada consider their mutual border to
be relatively "clean", they want to it to stay that way. North
Star is a preventative project, one that is designed to stay in
front of potential problems.
One of North Star's chief goals is to greatly improve the
ability of law enforcement agencies on the border to recognize
and react to any significant shift in trans-border criminal
activities. Federal, State, and local agencies will share
their expertise to strengthen law enforcement along the 4,000
mile U.S.-Canada border.
The Northern Border, with its many unguarded roads,
inactive airstrips and unpatrolled waterways, poses a
significant challenge. North Star, which will enhance
international and interagency cooperation, and ensure
appropriate attention to criminal activity, will help in
addressing the challenge.
Coordinating information and utilizing technology and all
available historical" data through North Star will help identify
vulnerable areas along the border. The Project will also make
new 1)~~'"5 of currently available resources.
Establishing a forum, where importers, exporters, business
leaders, and Customs officials may discuss and get action on
border issues, is the primary objective of the Project's
commercial program. Issues raised will be addressed quickly,
accurately and uniformly, and, when necessary, will be elevated

NB-873

-

2 -

to Washington, D.C. for resolution.
The forum is modeled, in
part 'after the Southwest Border Trade Alliance, which has been
effective in obtaining funding for improvements along the
U.S.-Mexico border.
Additional snpport for law enf()rcement initiatives will be
provided by the Department of Defense, which has co located its
Regional Logistics Support Center with the Buffalo North Star
facility.

FACT SHEET - PROJECT NORTH STAR
BACKGROUND
o

North Star is being established as a mechanism for coordination and cooperation along the U.S.-Canada Border to
facilitate trade and to ensure that we are able to identify
and help prevent illegal activity.

o

Along the 4,000 mile U.S.-Canada Border there are hundreds
or ungraded roads, scores of inactive airstrips, and long
stretches of unpatrolled waterways which invite the smuggling
of people and contraband in both directions.

o

The border between the U.S. and Canada is considered
relatively clean. We want to keep it this way. We are
prepared to address any potential shift in the threat, or
change in the existing situation.

o

Increased trade is a boon to our economies; yet criminal
elements often take advantage of new economic opportunities.

GOALS
o

Expand and enhance liaison channels and information
gathering efforts across the entire 4~000 mile U.S. Northern
border.

o

Incorporate a commercial Customs-to-Customs coordination
effort to expand our information gathering efforts.

o

Expand communication efforts between Customs and the trade
community along the Northern Border.

o

Identify the areas where we are most vulnerable to existing
and possible future increases in illegal activities.

o

Address these areas of vulnerability with increased
coordination and cooperation including
Technology enhancements.
Innovative use of existing resources.
Selective infusion of additional personnel and
equipment on a short term basis.

TR EASU RY,,·l\I EWS

De.artment Of the Treasury • wasJ:llngtOI1, D.C. • Tele.hone 588-204'
JUL I j ~J 0 U I b b J
For Release Upon Delivery
July 16, 1990
[) E;,' r. (. i:T ;-L:l' _, ,~:\~.

1,; ;,;'(

statement of Nicholas F. Brady
Secretary of the Treasury
Mid-Session Budget Review Press Conference
This morning the Administration will announce the results of
its annual Mid-Session Budget Review. This analysis provides an
updating of budget outlay, revenue, and deficit estimates for the
current and next fiscal year and a tentative look at budget
prospects through FY 1995. Director Darman is here to present
the results of the Administration's review.
It also provides a
new set of economic forecasts reflecting actual results and
policies since the official estimates published last January.
Chairman Boskin is here to review the economic forecast.
This year's review is particularly important ~ecause it sets
forth the present budget situation at a time of budget summit
discussions. The increase in projected budget deficits reflects
the fact that revenues are falling below anticipated levels and
outlays are running ahead of our January forecast.
This review emphasizes the importance of acting now to
reduce the deficit. The budget summit discussion should focus on
three objectives:
First, an immediate deficit reduction consistent with
sustained economic growth. This will enable monetary
policy to become more flexible.
Second, budget reform, to increase the efficiency and
effectiveness of the budget process.
And, third, credible deficit reductions over the next
five years that are large enough to bring the budget
into balance.

NB-874

2
Looking at the economy, we are now well into the eighth year
of the economic expansion.
We expect moderate growth to continue
and an unwinding of the temporary inflationary surge that
occurred at the beginning of this year, but there remain concerns
about the future that require coordinated fiscal and monetary
policy responses.
In last year's Mid-Session Review, the Administration
adjusted its economic forecasts to reflect changing conditions
and those estimates turned out to be accurate.
This year, we
again are revising our earlier forecasts by lowering the
estimated growth rate of real GNP in 1990 to 2.2 percent from the
2.6 percent figure reported last January, measured from fourthto-fourth quarters.
Finally, I must emphasize the fundamental importance of
coordinated fiscal and monetary actions to sustain moderate, noninflationary economic growth.
NOw, I'd like to ask Mike Boskin
to comment on the economic forecast.

OVERSIGHT BOARD
Resolution Trust Corporation
FOR IMMEDIATE
July 16, 1990
OB 90-41

CONTACT:

RELEASE

Diane Casey
Felisa Neuringer
(202)786-9672

OVERS IGHT BOARD APPROVES BULK SALES OF RTC ASSETS

The Oversight Board approved a plan that will allow the
Resolution Trust Corporation (RTC) to provide, on a trial basis,
financing for up to $2 billion of bulk sales transactions of RTC
assets.
To facilitate sales of assets, the RTC will identify blocks
of assets, including groups of commercial loans (both performing
and nonperforming), commercial properties, multi-family
residential properties, and multi-family residential loans (both
performing and nonperforming). These groups of as~ts will then
be sold in bulk packages.
The Oversight Board expects the bulk sales technique to
expedite the movement of large blocks of commercial loan and real
estate assets into private hands with suff±cient private capital
at risk. The terms of the transactions will shift to the private
sector the responsibility for and cost of managing, maintaining
and selling the assets, and will provide significant incentives
for the maximization of asset recoveries. In addition, the
government will share in the profits.
"The Board is supportive of the RTC using the private sector
in bulk sales transactions, particularly when the RTC can share
in the upside gains in asset collections," said Peter H. Monroe,
president of the Oversight Board. IIThis pilot program will
provide us with a good opportunity to test the market for bulk
sales of commercial properties and loans, which are among the
RTC's most difficult assets to manage and sell."
In approving the RTC's proposal, the OVersight Board
provided limited exceptions from certain provisions of its seller
financing policy. To permit the RTC to experiment with the bulk
sales technique, the oversight Board exempted the trial
transactions from the provision of the strateqic Plan that limits
the use of seller financing to real estate assets.
- more -

- 2 -

The bulk sales technique may be used during the trial period
for affordable housing and multi-family properties under the
applicable provisions of FIRREA.
During the trial period, the bulk sales transactions also
are exempt from the seller financing policy requirement that all
loans be sold within one year after date of origination.
However, the RTC is to report to the Oversight Board on the
options for sale into the secondary market of loans originated
from the bulk sales.
Also, during the trial period the $1 billion limitation on
the amount of seller financing loans held by the RTC would not
apply.

The Oversight Board is encouraging the RTC, where
appropriate, to use private sector firms in the origination and
underwriting of seller financing loans provided for the trial
transactions.
The trial transactions will be closely monitored by the
Oversight Board on an ongoing basis. An evaluation and review
of the transactions will be provided to the Oversight Board by
the RTC upon completion.
Any seller financing provided by the RTC for bulk sales
transactions will require a minimum down payment of 15 percent,
which is consistent with the existing seller financing policy.

The Oversight Board, established by the Financial
Institutions Reform, Recovery and Enforcement of 1989 (FIRREA),
formulates the policy, approves the funding, and provides the
general oversight for the RTC, the agency responsible for
resolving the nation's failed thrifts.
###

OVERSIGHT BOARD
Resolution Trust Corporation
FOR IMMEDIATE RELEASE
July 16, 1990
OB 90-42

Contact:

Diane Casey
Felisa Neuringer
(202) 786-9672

OVERSIGHT BOARD ADOPTS GUIDELINES FOR THE DISPOSITION OF PROPERTY
THAT

MAY ASSIST PUBLIC USES SUCH

AS

HOMELESS, DAY

CARE

The Oversight Board approved guidelines for the Resolution
Trust Corporation (RTC) to offer reai. estate to public agencies and
nonprofit organizations which have their applications endorsed by
local governmental bodies to be useQ for public purposes such as
day care and housing for the homeless.
The guidelines allow the RTe to evaluate properties to
determine their recovery value. A property may become eliqible for
the program if the net estimated recovery value does not justify
paying the holding and marketing costs for that property.
As intended by the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 (FIRREA) I some of the public purposes that
the RTC can consider for these properties are housing for lowerincome families; housing for the homeless; day care centers for
children of low- and moderate-income families: and other public
uses desiqnated by the Secretary of Housing ~nd Urban Development.
"We believe that these guidelines will allow the RTC to
develop a program that truly benefits the nation by adding a tool
in our efforts to end homelessness, expand affordable housing
opportunities, and even provide new day care opportunities for lowand moderate income persons," said Jack Kemp, Secretary of Housing
and Urban Development and a member of the OVersight Board.
The OVersight Board anticipates that the RTC will recover
funds from the sale of most properties, maximizing the return to
the taxpayer. However, in a very few cases the RTC may determine
that the real estate asset has no reasonable recovery value because
,)f one or more of the following charaGte't"istics:
the estimated
market value of the property is very low in absolute terms'; the
property has physically deteriorated; the holding costs are too
high when compared to estimated recovery value; or no offers are
received after marketing the property for an extended period of
time.
Under these circumstances, the RTC may transfer title to
a designated public agency or a nonprofit organization which has
its application for the property endorsed by a local governmental
body.

- more -

-2-

The guidelines only apply to· properties that the RTC owns in
its receivership or its corporate capacity.
Under the guidelines, the RTC would provide notice to public
agenc~es,
indicating properties are available for public use.
Pt]blic agencies and nonprofit organizations that have their
applications approved by local governmental bodies could then
submit a proposal to the RTC to obtain the property.
Permitting nonprofit organizations that have been endorsed by
a local governmental unit to apply directly to the RTC for such
property ensures that local officials are aware of and involved in
the process of determining the future uses of these properties.
Eligible public agencies under the guidelines would be any
federal agency, any state, county, local or other governmental
entity, including any public housing agency or local urban
homesteading agency.
The Oversight Board, established by FIRREA, formulates the
policy, approves the funding, and provides the general oversight
for the Resolution Trust Corporation, the agency responsible for
resolving the nation's failed thrifts.
###

EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON. D.C. 20503

MID-SESSION REVIEW
O·F THE BUDGET

NOTICE:
Embargoed: There should be
no release of this document
until 9:00 a.m. (E.D.T.)
Monday, July 16, 1990

July 16, 1990

TABLE OF CONTENTS
Page
Transmittal Letter .......................... ...................... .................. ....... ...... ........ ...... ............ ......

v

Introduction ...................................... .................. ...................... ........................ ....................

1

I. Economic Assumptions ........................................................ ............ ...................... ..............

2

II. Receipts........................................................ .........................................................................

4

III. Spending: Outlays, Budget Authority and Credit Programs...........................................

5

IV. Gramm-Rudman-Hollings Baseline....................................................................................

11

V. The Deficit Outlook ................................ ............................................................. .......... ......

13

VI. Potential Effects of $100 Billion Sequester .......................................................................

17

Appendices:
A. Comparisons With Congressional Budget Office Estimates ............................................

A-1

B. Sequesterable Baseline and Sequester Amounts Under a $100 Billion Sequester .......

B-1

C. Defense Programs Sequesterable Baseline and Sequester Amounts Under a $100 Billion
Sequester With Military Personnel Accounts Exempt..................................................

C-1

D. Summary Tables ..................................................................................................................

D-1

GENERAL NOTES
1. All years referred to are fiscal years unless otherwise
noted.
2. All totals in the text and tables include on-budget and
off-budget spending and receipts unless otherwise noted.
3. Details in the tables and text may not add to totals because
of rounding.

LIST OF TABLES
Table

Title

Page

1. Mid-Session Review: Economic Assumptions .............................................................. ......

3

2. Mid-Session Review: Change in Baseline Receipts ............ ............ ................ .... ..............

4

3. Mid-Session Review: Change in Baseline Outlays ...........................................................

6

4. Mid-Session Review: Change in Baseline Budget Authority...........................................

8

5. Mid-Session Review: Change in Baseline Credit Budget Totals ............................... ......

10

6. Mid-Session Review: Change in G-R-H Baseline for 1991 ..............................................

12

7. Mid-Session Review: Change in Adjusted Consolidated Baseline...................................

13

8. Mid-Session Review: Alternative Baseline Deficits .... ...... ............ .................... .......... ......

14

9. Mid-Session Review: FY'91 Deficit-Pre-Summit Congressional Path ..........................

14

10. Mid-Session Review: Budget Savings from Baseline ...... ......... .................. .... ..................

15

11. Mid-Session Review: Sequestration Calculations for 1991..............................................

17

A-I. Mid-Session Reviev.: Comparison of OMB and CBO Baseline Deficit Estimates .........

A-3

G-R-H Sequester Amounts..................................................................................................

B-3

G-R-H Sequester Amounts-Defense .................................................................................

C-3

D-I. Mid-Session Review: Outlays for Mandatory and Related Programs Under
Current Law .....................................................................................................................

D-3

D-2. Mid-Session Review: Estimated Spending from End of 1991 Balances of Budget
Authority: Nonmandatory Programs..............................................................................

D-4

D-3. Mid-Session Review: Adjusted Consolidated Baseline Receipts by Major Source .........

D-5

D-4. Mid-Session Review: Adjusted Consolidated Baseline Outlays by Agency.....................

D-6

D-5. Mid-Session Review: Adjusted Consolidated Baseline Outlays by Function .................

D-7

D-6. Mid-Session Review: Adjusted Consolidated Baseline Outlays by Category .................

D-8

D-7. Mid-Session Review: Adjusted Consolidated Baseline Budget Authority by Agency....

D-9

D-8. Mid-Session Review: Adjusted Consolidated Baseline Budget Authority by Function.

D-10

D-9. Mid-Session Review: Adjusted Consolidated Baseline New Direct Loan Obligations
by Agency ..........................................................................................................................

D-11

D-10. Mid-Session Review: Adjusted Consolidated Baseline New Direct Loan Obligations
by Function .......................................................................................................................

D-11

D-11. Mid-Session Review: Adjusted Consolidated Baseline New Guaranteed Loan
Commitments by Agency .................................................................................................

D-12
111

Table

Title

Page

D-12. Mid-Session Review: Adjusted Consolidated Baseline New Guaranteed Loan
Commitments by Function ..............................................................................................

D-13

D-13. Mid-Session Review: January/June Proposed Receipts by Major Source.......................

D-14

D-14. Mid-Session Review: January/June Proposed Outlays by Agency..................................

D-15

D-15. Mid-Session Review: January/June Proposed Outlays by Function ...............................

D-16

D-16. Mid-Session Review: January/June Proposed Outlays by Category ...............................

D-18

D-17. Mid-Session Review: January/June Proposed Budget Authority by Agency..................

D-19

D-18. Mid-Session Review: January/June Proposed Budget Authority by Function ...............

D-20

D-19. Mid-Session Review: January/June Proposed New Direct Loan Obligations
by Agency.................................................................................. .................................... ....

D-22

D-20. Mid-Session Review: January/June Proposed New Direct Loan Obligations
by Function.. ...... ...... .......... ..... ..... ...... ...... .... .... .......... ............. .... ........ .... .... ...... ............ ....

D-22

D-21. Mid-Session Review: January/June Proposed New Guaranteed Loan Commitments
by Agency........................................................................................... ...............................

D-23

D-22. Mid-Session Review: January/June Proposed New Guaranteed Loan Commitments
by Function.......................................................................................................................

D-24

D-23. Mid-Session Review: Federal Government Financing and Debt.. .... ...............................

D-25

iv

Text of the letter transmitting the Mid-Session Review of the Budget

EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503

THE DIRECTOR

July 16, 1990

Honorable Thomas S. Foley
Speaker of the House of Representatives
Washington, D.C. 20510
Dear Mr. Speaker:
Section 221 of the Legislative Reorganization Act of 1970 requires that the President transmit
to the Congress a supplemental summary of the budget that was transmitted to the Congress earlier
in the year. This supplemental summary of the budget, commonly known as the Mid-Session Review,
contains:
• revised estimates ofthe budget receipts, outlays and budget authority for fiscal years 1990-1995;
• revised estimates of the baseline used ul1der the Balanced Budget and Emergency Deficit
Control Act to determine if automatic spending reductions are to be triggered;
• economi.c assumptions underlying the data;
• a summary of estimated outlays in each of the first four years after fiscal year 1991 that will
be required under continuing programs that have a legal commitment for future years or are
considered mandatory under existing law; and
• a summary of estimated outlays in future years from balances carried over from fiscal year
1991.
At the President's direction, I have the honor to transmit the required Mid-Session Review of the
budget.
Respectfully yours,

Richard G. Darman
Director

Enclosure

IDENTICAL LETTER SENT TO THE HONORABLE DAN QUAYLE

v

INTRODUCTION
An annual Mid-Session Review of the Federal budget has been required since the Legislative
Reorganization Act of 1970. Later legislation has expanded the information required to be included
in the Mid-Session Review, most recently the Balanced Budget and Emergency Deficit Control Reaffirmation Act of 1987 (commonly known as the Gramm-Rudman-Hollings Act, or G-R-H).

Consistent with the amended law, this document, prepared by the Office of Management and
Budget, updates budget baseline estimates for:
• changes in economic assumptions (described at page 2);
• changes in technical estimates of receipts and outlays (discussed at pages 4 and 6);
• enacted legislation (discussed at page 8); and
• changes in Presidential policy, which seeks major multi-year deficit reduction through prompt
and responsible conclusion of the current Bipartisan Summit Negotiations on the Budget.
As required by law, the Mid-Session Review also updates the G-R-H baseline outlays, receipts,
and deficit-in light of changed economic assumptions, technical reestimates, enacted legislation,
promulgated regulations, and other policy actions (page 11).
The law also requires the Office of Management and Budget to calculate required sequester
amounts-across-the-board cuts-as may be necessary to achieve the G-R-H targets. The initial report
on required sequester amounts must be published officially on August 25. Because the likely sequester
requirements are extraordinary this year, and because they are highly relevant to the current Budget
Summit Negotiations, a preliminary view of possible sequester requirements is published here, in
advance. The sequester outlook is at pages 17-38.
Clearly, the sequester alternative is unattractive. It is, therefore, all the more reason to seek to
reach prompt agreement on a responsible, multi-year deficit reduction program.

1

I. ECONOMIC ASSUMPTIONS
Th~ economy has now completed 71;2 years of continuous growth, extending the longest peacetime

expanSIon on record. For the past 20 months the total unemployment rate has remained on a plateau
of around 51;4 percent, the lowest level since early 1974. There are few signs that inflation is
accelerating. Short-term interest rates are lower than they were a year ago, but long-term rates are
slightly higher.
Although economic performance this year has been positive, the January budget assumed 8 more
favorable outcome. Real growth has proved to be a little slower than forecast and inflation somewhat
higher; interest rates moved up in the beginning months of the year. The economic assumptions
underlying the Mid-Session Review incorporate this new information. The assumptions then move
back toward the Administration's long-term, growth-oriented target path. These new assumptions
have been developed jointly by the Council of Economic Advisers, the Treasury, and the Office of
Management and Budget. They are presented at Table 1.
The Mid-Session Review projects a 2.2 percent increase in real GNP over the four quarters of
1990, compared with 2.6 percent projected in the January budget. Real growth in the first quarter
was at a 1.9 percent annual rate.
The Mid-Session Review assumes growth in the second half of the year win be at a faster pace
than during the first half. In the following five years, average real growth is assumed to be slightly
above 3 percent annually, similar to the January budget assumption. This compares with a 4~year
average real growth rate of 3.3 percent. The total unemployment rate is projected to average 5.6
percent in 1991, declining in subsequent years to 5.2 percent by 1995.
Prices rose more rapidly in the first quarter than anticipated in the January budget as unusual
weather patterns drove up food and energy prices. The Consumer Price Index increased at an 8.2
percent annual rate and the GNP implicit price deflator at a 5.4 percent rate. Inflation in the second
quarter was much more subdued: energy prices fell, food prices eased, and other prices rose slowly.
As a result of higher inflation earlier this year, however, the Mid-Session Review projects a slightly
faster rise in prices during 1990 than the January budget. The Consumer Price Index is now expected
to increase 4.8 percent over the four quarters of 1990, compared with 4.1 percent in the January
budget; the deflator is now projected to rise 4.5 percent in 1990 instead of 4.2 percent. Inflation in
1991 and beyond is expected to decline gradually. This projected reduction assumes that the Federal
deficit is substantially reduced and that the Federal Reserve pursues a monetary policy that fosters
economic growth while promoting its long-term objective of price stability.
The January budget had assumed that interest rates would start to decline steadily this year.
Instead, rates rose through early spring. Even though they have declined in recent months, short·and
long-term rates in the second quarter averaged about three-quarters of a percentage point above the
levels projected in the Budget. The Mid-Session Review assumes interest rates will remain around
current levels during the second half of this year and then move progressively lower during the
following five years as inflation and the Federal deficit are reduced.
The effects of the changes in economic assumptions on receipts and outlays are discussed in
Sections II and III, respectively.

2

Table 1. MID-SESSION REVIEW: ECONOMIC ASSUMPTIONS
(Calendar years; dollar amounts in billions)
Actual
1989
Major economic indicators:
Gross national product (percent change, fourth
quarter over fourth quarter):
Current dollars ....................................................
Constant (1982) dollars ......................................
GNP deflator (percent change, fourth quarter
over fourth quarter) ............................................
Consumer Price Index (percent change, fourth
quarter over fourth quarter) 1 •..........•.......•..•.....
Unemployment rate (percent, fourth quarter) 2 •••
Annual economic assumptions:
Gross national product:
Current dollars:
Amount .............................................................
Percent change, year over year ......................
Constant (1982) dollars:
Amount .............................................................
Percent change, year over year ......................
Incomes:
Personal income ..................................................
Wages and salaries .............................................
Corporate profits before tax ...............................
Price level:
GNP deflator:
Level (1982=100), annual average .................
Percent change, year over year ......................
Consumer Price Index: 1
Level (1982-84=100), annual average ............
Percent change, year over year ......................
Unemployment rates:
Total, annual average 2 •••••••••••••••••••••••••••••••••••••••
Insured, annual average 3 ••••••••••••••••••••••••••••••••••
Federal pay raise, January (percent) ....................
Interest rate, 91-day Treasury bills (percent) 4 ••••
Interest rate, lO-year Treasury notes (percent) ...

Estimates
1990

1991

1992

1993

1994

1995

6.4
2.6

6.8
2.2

7.2
2.9

7.3
3.3

6.9
3.2

6.5
3.1

6.0
3.0

3.8

4.5

4.2

3.9

3.6

3.3

2.9

4.5
5.3

4.8
5.6

4.2
5.6

3.9
5.5

3.6
5.4

3.3
5.3

2.9
5.2

5,234
7.2

5,563
6.3

5,957
7.1

6,392
7.3

6,844
7.1

7,300
6.7

7,750
6.2

4,144
3.0

4,226
2.0

4,343
2.8

4,482
3.2

4,627
3.2

4,772
3.1

4,917
3.0

4,420
2,631
291

4,749
2,814
306

5,053
3,020
356

5,377
3,245
415

5,744
3,478
448

6,109
3,705
490

6,444
3,930
527

126.3
4.1

131.6
4.2

137.2
4.2

142.6
4.0

147.9
3.7

153.0
3.4

157.6
3.1

122.6
4.8

128.4
4.8

133.7
4.1

139.0
4.0

144.2
3.7

149.1
3.4

153.6
3.0

5.2
2.1
4.1
8.1
8.5

5.4
2.3
3.6
7.7
8.5

5.6
2.4
3.5
6.8
7.9

5.5
2.2
4.0
5.8
7.0

5.4
2.2
3.7
5.1
6.1

5.3
2.1
3.4
4.8
5.8

5.2
2.0
3.1
4.4
5.4

1 CPI for urban wage earners and clerical workers. Two versions of the CPI are published. The index shown here is that
currently used, as required by law, to calculate automatic cost-of-living increases for indexed Federal programs.
2 Percent of total labor force, including armed forces residing in the U.S.
3 This indicator measures unemployment under state regular unemployment insurance as a percentage of covered
employment under that program. It does not include recipients of extended benefits under that program.
4 Average rate on new issues within period, on a bank discount basis.

3

II. RECEIPTS
. The current estima~s of baseline receipts for bot~ 1990 an? 1~91 are lower than the January
estImates. Actual collectIons to date, new data regarding the dlstnbution of wages relative to the
social security taxable maximum, and adjustments to Treasury estimating models are the major
reasons for the lower estimates of receipts.

Table 2. MID-SESSION REVIEW: CHANGE IN BASELINE RECEIPTS
(In billions of dollars)

1990

1991

1992

1993

1994

1995

January estimate ......................................
Changes due to:
Technical reestimates .....................
Economic assumptions ...................
Administrative action .....................

1,072.8

1,156.3

1,234.9

1,323.5

1,401.9

1,480.8

-24.2
-4.5
-0.1

-27.0
-7.2
-0.4

-31.0
-8.7
-0.8

-38.2
-5.8
-0.8

-35.7
-2.5
-0.7

-39.4
0.5

Total changes ...............................

-28.8

-34.6

-40.4

-44.8

-38.9

-39.6

Mid-session estimate .................................

1,044.0

1,121.7

1,194.5

1,278.7

1,363.1

1,441.1

~.8

Technical reestimates, which primarily reflect adjustments to income and employment taxes, are
estimated to lower baseline receipts by $24.2 billion in 1990 and $27.0 billion in 1991. Technical
adjustments in estimates of individual income tax receipts account for $13.5 billion of the downward
revision to 1990 receipts. Most of this adjustment is attributable to lower than estimated final
settlements of 1989 liabilities. Reestimates of the effect of the Tax Reform Act of 1986 on corporate
income taxes and greater than anticipated use of Subchapter S filings by corporations account for an
additional $7.5 billion of the downward revision in 1990 receipts. The remaining technical adjustment
in 1990 receipts is in large part attributable to lower than previously estimated payroll taxes, reflecting
a larger proportion of wages above the social security taxable maximum than previously assumed.
The estimates for 1991-1995 have been revised to take these factors into account.
Economic assumptions are estimated to lower total receipts by $4.5 billion in 1990 and $7.2 billion
in 1991 compared with the January budget. This is due primarily to a lower than anticipated corporate
profits taxable base, reflecting weaker economic activity.
Because 1990 IRS staffing will fall short of anticipated levels, estimated tax receipts from direct
enforcement initiatives are reduced by small amounts in each year.

4

III. SPENDING: OUTLAYS, BUDGET AUTHORITY, AND CREDIT
PROGRAMS
Outlays
The current estimate for adjusted baseline outlays for 1990 is $1,262.5 billion, $67.7 billion more
than the January estimate of $1,194.8 billion. The adjusted baseline estimate for 1991 is $1,353.1
billion, $96.3 billion more than the January estimate of $1,256.8 billion. The changes from January
to July are due to revised economic assumptions, new estimates for the Resolution Trust Corporation,
other technical reestimates, and policy changes resulting in part from enactment ofthe Dire Emergency
Supplemental Appropriations Act of 1990. The estimates are shown in Table 3.

Economic Changes
The adjusted baseline estimate for 1991 outlays has increased by $17.0 billion since January due
to changes in economic conditions. The increase is primarily due to higher interest rates than those
assumed in January. These revisions increase net interest outlays for 1991 by $10.2 billion. Other
increases include $1.3 billion for unemployment insurance due to higher total unemployment rates
and $1.5 billion for higher social security cost-of-living allowances as a result of higher inflation than
was assumed in January.

Resolution Trust Corporation (RTC)
Estimated outlays for RTC for 1991 have increased by about $55 billion since January. This is a
highly uncertain estimate. It assumes the enactment of new spending authority-necessary to continue
to resolve failing thrifts and to honor commitments to cover federally-insured deposits.
Although the RTC, through the third quarter of 1990, has resolved 207 thrifts with $65 billion
in assets and estimated losses of approximately $25 billion, the S&L problem has worsened since the
enactment of FIRREA last August. Treasury Secretary Brady testified in May and June that several
factors have caused the significant increase in cost estimates: these include the decline in regional
real estate markets, higher interest rates, and low demand for thrifts as a franchise. Estimates of
the cost remain highly uncertain, but it is now clear that the $50 billion authorized by FIRREA will
be insufficient to deal with failed, or failing, thrifts.
The Administration has produced estimates ofthe budget impact ofRTC spending over the budget
planning period under three different scenarios: a lower bound including 712 thrifts, with small losses
on assets and with $25 billion in assets resolved per quarter; and two additional estimates with 1,027
thrifts, $40 billion in assets resolved per quarter and using either a medium or high loss rate-the
upper bound. Estimated RTC net outlays in 1991, for both losses and working capital, range from
$32 billion to $63 billion. Both the policy and adjusted baseline estimates in this document assume
the larger group of failed thrifts with a medium loss rate, which results in outlays of $63 billion in
1991, compared to $7.3 billion assumed in January. There are, as Secretary Brady has stressed in
recent testimony, too many significant variables to have confidence in any single estimate of the size
of the problem. There is a great deal of uncertainty concerning the number of institutions that will
ultimately fail, the rate at which the RTC can resolve insolvent institutions, the size of losses to be
taken on assets acquired, the impact of changes in interest rates and economic conditions, and the
market for thrift institutions.
Discussion continues on the appropriate budgetary treatment of RTC transactions. The Congressional Budget Office (CBO) has proposed that all RTC transactions, with the exception of administrative
costs and interest payments to the Federal Financing Bank (FFB), be exempted from calculation of
the G-R-H deficit (although not excluded from Federal budget totals). (The Chairmen of the Senate
Budget and Banking Committees have supported a similar proposal to exempt all RTC outlays from
the G-R-H calculation.) The effect of this budgetary treatment is displayed in Table 8 in Part 5.

5

Table 3. MID·SESSION REVIEW: CHANGE IN BASELINE OUTLAYS
(In billions of dollars)

1990

1991

1992

1993

1994

1995

January baseline estimate .......................
Changes:
Economic assumptions:
Earned income tax credit.. .............
Food stamps ....................................
Social security .................................
Unemployment compensation ........
Other ...............................................
Net interest:
Interest rate effect ......................
Debt service 1 ...............................
Subtotal, economic ...................

1,194.8

1,256.8

1,307.8

1,362.6

1,415.0

1,467.4

0.3

-

0.4
0.8
1.5
1.3
1.1

0.6
1.0
2.5
0.8
1.3

0.8
1.1
3.0
0.9
1.4

1.1
1.1
3.1
0.9
1.5

1.4
1.2
3.5
0.5
1.4

1.7
0.2
1.9

10.2
1.6
17.0

11.9
3.6
21.7

8.9
5.3
21.4

6.6
6.7
21.1

4.9
7.7
20.6

Resolution Trust Corporation 2 .........
Technical reestimates:
CCC fund ........................................
DOD-Military ...............................
FDIC: Bank insurance fund ..........
FDIC: FSLlC resolution fund ........
FDIC: Savings Association Insurance Fund ....................................
Federal buildings fund ...................
Food stamps ....................................
Foreign military financing .............
Medicaid ..........................................
Medicare ..........................................
Social security .................................
Supplemental security income .......
Unemployment compensation ........
Veterans compensation ..................
Other ...............................................
Net interest 1 ...................................
Subtotal, technical .......................

54.8

55.2

41.3

-5.4

-41.7

-20.0

-1.4
3.5
1.9
- ...

-4.1
0.8
3.8
1.4

-3.6
0.6
3.3
0.8

-2.0
-0.4
2.7
1.4

-1.1
3.2
1.9
0.5

-

-

0.1
0.7
2.0
0.7
0.3
0.2
0.1
1.0
0.1
-3.4

O.B
0.9
-0.3
2.6
1.3
0.6
2.0
0.7
0.2
2.3
9.2
22.3

-1.5
1.1
1.0
-0.4
4.4
1.8
0.6
0.8
1.0
0.3

-1.9
1.5
1.1

-0.8
1.7
1.0
-0.1
7.0
2.6
0.3
1.2
1.0
1.3

-oj<

-0.3

3.B

9.6

-0.8
1.8
0.8
-0.1

15.5
27.3

24.9
46.5

3.4
0.1
1.0
1.3
1.7
1.9
29.2
48.1

0.4
0.7
0.5
1.5
51.2

0.4
0.6
0.6
1.7
27.7

0.5
0.6
0.7
1.8
50.5

1,413.9

1,442.7

1,517.9

1.5

0.3
0.9
0.1
1.3
67.7

96.3

0.3
0.7
0.4
1.4
91.6

Mid-Session baseline estimate ..............

1,262.5

1,353.1

1,399.5

1.8

1.4
0.6

5.8
2.0
0.5
1.0
0.9
-1.0
1.4
20.6
33.7

Policy:
Dire Emergency SupplementaL ....
Other ...............................................
Debt service 1 ..................................
Subtotal, policy ............................
Subtotal, changes .........................

0.6
0.9
0.2

- ..

-1.2
-o.B

1.8

B.O

*$50 million or less.
1

2

Includes the debt service effects of changes to both receipts and outlays.
RTC estimates are highly uncertain and would better be viewed as a range that could be $30 billion

wide.

Technical Changes
Technical changes result from factors such as revised crop forecasts affecting farm price support
costs, changes in estimated caseloads for entitlement programs, changes in the estimated rate at
which outlays result from commitments-and other non-economic, non-po1icy conditions different from
those previously assumed.
Estimated outlays for the adjusted baseline increased $22.3 billion for 1991 from January to July
due to technical factors.
• The current estimate of Commodity Credit Corporation (CCC) outlays is $4.1 billion lower than
the January estimate for 1991. Current feed grain prices, in particular, corn, are significantly
above levels projected in January due to a stronger than estimated domestic demand and a
6

higher than estimated share of the export market. While strength in the price will call forth
additional production resulting in an eventual decline in prices and higher subsidy payments,
subsidies are not now expected to reach previously estimated levels for the five year period.
• Estimated outlays for the Department of Defense-Military increased $0.8 billion due to technical
factors. This is primarily due to faster spendout of obligations than assumed in January.
• The current estimate of the Federal Deposit Insurance Corporation (FDIC) outlays for the bank
insurance fund in 1991 is $3.8 billion above the January estimate due to the continued uncertain ty
regarding the health ofthe banking industry. Actual outlays may vary significantly from current
estimates.
• The current estimate of FDIC's Federal Savings and Loan Insurance Corporation (FSLlC)
resolution fund outlays for 1991 is $1.4 billion above the January estimate. (These outlays
involve pre-FIRREA case resolutions.) Factors leading to these increased costs include higher
interest payments on FSLlC notes, higher assistance agreement payments and decreased
collections from asset sales.
• Estimated outlays for the FDIC savings association insurance fund have declined in later years
because some of the insolvent thrifts it was expected to resolve are now assumed to be resolved
sooner by the Resolution Trust Corporation.
• The increase in outlay estimates for the Federal buildings fund results from the decision to
revise the scoring for new lease purchases.
• Estimated outlays for food stamps increased in 1991 by $0.9 billion for technical reasons, largely
due to more participation than anticipated in January. Pursuant to the Dire Emergency Supplemental Appropriations Act of 1990 (P.L. 101-302), the Administration is requesting the
additional $1.2 billion in budget authority for food stamps for 1990 included in that Act.
• Estimated 1990 outlays for foreign military financing are $2.0 billion above the January estimate
primarily because fewer countries refinanced their loans than assumed in the January estimate.
The increase in 1990 is offset by decreases in later years.
• Estimated outlays for Medicaid have increased $2.6 billion for 1991, due primarily to more
participation than previously estimated and higher average outlays per participant
• Estimated outlays for Medicare have increased for 1991 by $1.3 billion due to technical reasons.
Medicare hospital insurance outlays are estimated to increase by about $2.5 billion primarily
because of higher inpatient utilization than previously expected, and more recent hospice service
data. Medicare supplementary medical insurance (SMI) outlays, net of premium receipts, are
estimated to decrease by a net $1.2 billion because of revised actuarial estimates of physician
and outpatient services, lower rates of growth in SMI enrollment, and one-time payments to
certain providers required by the court decision in Cosgrove v. Bowen.
• Estimated outlays for social security increase $0.6 billion in 1991 due to higher average benefit
payments that more than offset declines in the estimated number of beneficiaries.
• Estimated outlays for supplemental security income (SS1) for 1991 are $2.0 billion above the
budget estimate due to higher than expected benefits and participation and the effect of the
court decision in the Zebley case. The decision requires that disabled children under SSI who
do not meet listed disability criteria be evaluated on the basis of functional ability, as adults
are. Costs may change when the court decides the period of retroactivity. No funds for administration are included in these estimates.
• Estimated outlays for unemployment compensation for 1991 are $0.7 billion more than the
January estimate because a larger portion of the unemployed is actually claiming benefits and
because of higher administrative costs to process the additional claims.
• Estimated outlays for veterans compensation are $0.2 billion more than the January estimate
because of a higher than anticipated number of beneficiaries and higher average benefits.
• Net interest estimates increased an estimated $9.2 billion in 1991 for technical reasons, largely
for debt service costs.

7

Policy Changes

The major legislation enacted since January is the Dire Emergency Supplemental Appropriations
Act of 1990, which increased 1990 and 1991 net outlays for discretionary programs by an estimated
$0.3 billion and $0.6 billion respectively. In accordance with rules specified in the G-R-H Act, the
baseline is calculated on a basis that assumes discretionary changes enacted in the Supplemental
Appropriations Act will continue in real terms through 1995.
The other policy changes are primarily the result of 1990 transfers within the Department of
Defense to fund CHAMPUS medical programs.

Budget Authority
The current estimate for budget authority for 1991 for the adjusted baseline is $1,469.6 billion,
an increase of $59.4 billion from the January estimate of $1,410.2 billion. These estimates are shown
on Table 4.

Table 4. MID-SESSION REVIEW: CHANGE IN BASELINE
BUDGET AUTHORITY
(In billions of dollars)

January baseline estimate .......................
Changes:
Economic assumptions:
Earned income tax credit.. .............
Federal employee retirement.. .......
Food stamps ....................................
Social security .................................
Unemployment compensation ........
Other ...............................................
Net interest I ...................................
Subtotal, economic .......................
Resolution Trust Corporation 2 .........

1990

1991

1992

1993

1994

1995

1,333.6

1,410.2

1,478.2

1,555.1

1,629.3

1,697.3

0.3

1.9
2.5

0.4
0.5
0.9
0.8
0.1
1.4
11.8
15.9

0.6
1.2
1.0
1.0
0.6
1.3
15.5
21.2

0.8
1.6
1.1
2.1
1.3
1.5
14.3
22.7

1.1
1.7
1.1
3.0
1.9
1.6
13.3
23.8

1.4
1.9
1.2
4.2
2.4
1.6
12.6
25.2

-

28.6

31.5

17.7

3.2

0.9

-3.6
1.0

-3.2
2.8

-3.6
1.8

-2.0
1.8

-1.1

-1.2
1.1

-

0.2

_.•

Technical reestimates:
CCC fund ........................................
FDIC: Bank insurance fund ..........
FDIC: Savings Association Insurance Fund ....................................
Federal buildings fund ...................
Food stamps ....................................
Medicaid ..........................................
Medicare ..........................................
Social security .................................
Supplemental security income .......
Unemployment compensation ........
Other ...............................................
Net interest 1 ...................................
Subtotal, technical ..........................

-

-

1.6
1.2
0.7
-2.3
-4.2
0.1
-0.3
3.5
3.8
1.4

-2.0
1.8
1.0
4.4
-4.1
-4.6
0.8
0.2
4.4
15.5
15.6

-0.7
1.8
1.1
5.8
-4.6
-5.7
1.0
0.5
2.2
20.6
21.9

-

-

1.7
0.9
2.6
-2.5
-2.5
2.0
-0.1
3.5
9.2
14.3

1.9
1.0
7.0
-5.6
-6.8
1.2
1.1
3.6
24.9
28.6

1.9
0.8
8.0

Policy:
Dire Emergency Supplemental.. ....
Other ...............................................
Debt service 1 ..................................
Subtotal, policy ............................
Subtotal, changes .........................

0.3
-0.2
0.1
0.2
4.0

0.3
0.1
0.2
0.6
59.4

0.3
0.1
0.4
0.8
69.1

0.3
0.1
0.5
0.9
63.2

0.3
0.1
0.6
1.1
56.7

0.3
0.2
0.7
1.2
56.8

Mid-Session baseline estimate .................

1,337.6

1,469.6

1,547.3

1,618.3

1,686.0

1,754.1

1.2

~.8

--B.O

1.0
1.7
1.6
29.2
29.4

•$ 50 million or Iss
e .
~ Includes. the debt service effects o~ changes to both receipts and outlays.
'd RTC estimates are highly uncertain and would better be viewed as a range that could be $30 billion
WI

8

e.

Budget authority changes are primarily for the same programs and for the same reasons as are
described in the outlay section above. The major exceptions are trust funds, for which changes in
budget authority generally reflect changes in income to the funds. For example, revisions in projected
wages and salaries have increased estimates of social security tax receipts, thereby raising budget
authority for the social security trust funds. These increases, however, are more than offset by
downward technical reestimates of social security trust fund income.

Credit Programs
The Federal credit budget supplements the unified budget as a separate system for measuring
the volume of new direct loans and loan guarantees extended to borrowers. Unlike the unified budget,
the credit budget measures new credit at the point where the Government contracts to provide a
direct loan or loan guarantee. Guaranteed loan commitments are recorded as the fun principal of the
loan even if the Government's contingent liability is less than the principal amount. The credit budget
focuses on the volume of Federal loans and guarantees, not their impact on budget outlays or their
subsidy to assisted borrowers.
Outlays for credit programs in the unified budget include direct loan disbursements net of
repayments and sales, and loan guarantee fees net of defaults. The Administration has proposed to
revise the treatment of credit programs within the unified budget. Its credit reform proposal would
show appropriated subsidies for all new direct loans and loan guarantees in order to measure and
control the subsidy component of credit activity on an expenditure basis equivalent to other Federal
spending. However, the subsidy amounts are not included in the agency or function totals in the
present Mid-Session Review.
As Table 5 shows, the credit budget baseline totals are now estimated to be $134.2 billion in 1990
and $150.8 billion in 1991. The current estimate is $2.2 billion below the January baseline estimate
for 1990, and $1.4 billion above the January baseline estimate for 1991. These changes are due entirely
to technical reestimates that reflect revised estimates of the demand for various loan programs.

Direct Loan Obligations
New direct loan obligations in 1990 are now estimated to be $16.6 billion, $1.7 billion below the
January baseline estimate. For 1991, the current estimate is $16.6 billion, $1.1 billion below than
the January baseline estimate.
Estimated commodity price support and related loans are $0.7 and $1.5 billion below January
for 1990 and 1991, respectively. These technical reestimates reflect reduced demand.
The current estimates for rural electrification and telephone loans are $0.7 billion below January
for 1990 because of a lower estimate of demand for loans to power supply borrowers.
The current estimates for VA housing vendee loans are $0.2 billion above the January estimate
for both 1990 and 1991. These reestimates reflect an increase in the number of properties sold on
terms (vendee financing) as opposed to selling them for cash, which reflects the current program
trend.

Guaranteed Loan Commitments
New guaranteed loan commitments are now estimated to be $117.7 billion for 1990 and $134.2
billion for 1991. These levels reflect a decline of $0.4 billion from the January estimate for 1990 and
an increase of $2.5 billion for 1991.
The current estimate for the agricultural credit insurance program is $1.8 billion below the
January estimate for 1990 because program participation has been less than expected.
The level of VA-guaranteed loans is estimated to be $1.4 billion above the January estimate for
1990 and $2.0 billion above for 1991. These reestimates reflect an increase in actual loan originations
in 1990; increases in recourse loan sales, which are scored as new guaranteed loans; and the out-year
impact of recent housing trends.
9
270-858 0

:K) -

2

QL 3

Secondary Guaranteed Loans
New GNMA guarantees of mortgage-backed securities are now estimated to be $2.0 billion above
the January estimate for 1991. This increase is the result of the higher level of VA-guaranteed loan
activity.
Table 5. MID-SESSION REVIEW: CHANGE IN BASELINE CREDIT
BUDGET TOTALS
(In billions of dollars)
1990
Direct loan obligations:
January estimate ................................................
Technical reestimates:
CCC commodity loans .................................
Rural Electrification Administration .........
VA loan guaranty & guaranty and indemnity funds .................................................
Other ............................................................
Subtotal, technical reestimates ...............
Mid-Session estimate, direct loan obligations ..
Guaranteed loan commitments:
January estimate ................................................
Technical reestimates:
FmHA-Agricultural credit insurance fund
VA loan guaranty & guaranty and indemnity funds .................................................
Other ............................................................
Subtotal, technical reestimates ...............

1991

1992

1993

1994

1995

18.3

17.8

17.8

17.9

17.9

18.0

-Q.7
-Q.7

-1.5

-1.3

-Q.8

-Q.4

-Q.5

*

*

*

*

*

0.2

0.3

0.5

-*

-Q.1

-0.9

-Q.1
-Q.5

0.4
0.1

-1.7

0.2
0.1
-1.1

-

-0.3

16.6

16.6

16.9

17.4

17.9

17.8

118.1

131.7

135.5

138.9

143.3

147.5

-Q.5

-

-

-

-Q.4

2.0
0.4
2.5

2.1
-0.2
1.9

Mid-Session estimate, guarantee loan commitments ...............................................................

117.7

134.2

Total credit budget:
January baseline estimate .................................
Total changes ...............................................
Mid-Session estimate, total credit budget ........

136.4
-2.2
134.2

0.4

-

-

1.0

-Q.1

*

-0.1

0.1
-0.1

1.0

-Q.1

-*

137.4

139.9

143.2

147.5

149.5
1.4
150.8

153.3
1.0
154.3

156.8
0.5
157.4

161.2

165.6

-Q.l

-Q.3

161.1

165.3

81.7

85.1

88.5

91.7

94.9

97.8

-

2.0

2.2

1.0

-

-

87.1

90.7

92.7

94.9

97.8

-1.8

1.4
-Q.1

ADDENDUM
Secondary guaranteed loans:
January estimate ................................................
Technical reestimates:
GN1w1A-Guarantees of mortgage-backed
securities ...................................................
Mid-Session estimate, secondary guaranteed
loans
•

~"'"

•••••••••••••••••••••••• ••••••••••••••••• •••••• 0 ••••••••••

*$50 million or less.

10

81.7

Iv. GRAMM-RUDMAN-HOLLINGS BASELINE

The Balanced Budget and Emergency Deficit Control Act of 1985, as amended, requires that the
Mid-Session Review present an updated estimate of the Gramm-Rudman-Hollings (G-R-H) baseline
deficit as defined in the Act. This section provides a brief discussion of the current G-R-H baseline
estimates, how the current baseline differs from the January estimates, and sequester estimates for
the current G-R-H baseline.
The Director ofOMB is required by the Act to use the Mid-Session economic assumptions (presented
in Part I above) and the Mid-Session technical assumptions (presented in Parts II and III above) in
developing estimates for the initial sequester report, to be submitted on August 25, 1990, and for the
final report, to be submitted on October 15, 1990.
The current baseline estimates must be based on current law, and incorporate all laws enacted
and regulations promulgated as final by July 10, 1990. The estimates follow the specifications set
forth in the Act for developing the baseline and, therefore, include no adjustments for anomalies that
result from the requirements of the Act. For instance, the G-R-H estimates assume that in 1991 the
authorization for the food stamp program will expire and that the 1990 decennial census will be
repeated in 1991. (The latter certainly will not occur, and the former is highly unlikely. Nonetheless,
the G-R-H Act requires that the baseline be calculated as if these unlikely events were reality')
In addition, the Act requires that G-R-H estimates of the Resolution Trust Corporation (RTC)
net outlays be constrained by the current law limit on the availability of RTC funding as provided
by the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989 (Public Law
101-73). It now appears that the RTC may reach the $50 billion limit in early 1991. For G-R-H
baseline purposes, therefore, the RTC must be treated as if it were to run out of funds. Using the
scenarios described earlier, but assuming no additional funding, RTC outlays could range from $-14
billion to $14 billion. The Mid-Session G-R-H estimates-based on the larger group of failed thrifts
but with a medium loss rate on asset sales-use a figure in the middle of this range, producing RTC
outlays for 1991 of about $0.1 billion. (In reality, as noted above, RTC net outlays for 1991 are likely
to exceed $50 billion-but, since this requires a change of law, the G-R-H baseline does not reflect
this fact.)
Using these assumptions, total G-R-H baseline outlays are estimated to be $1,270.1 billion and
receipts are estimated to be $1,121. 7 billion. The resulting G-R-H baseline deficit of $148.4 billion is
$84.4 billion above the $64 billion target specified by the Act for 1991 and $74.4 billion above the
level that would require automatic reductions, referred to as a sequester. (The law provides a $10
billion margin or "cushion" beyond the deficit target before a sequester is triggered.) The uniform
percentage reductions required under a $84.4 billion sequester would be 31.9 percent for nondefense
programs subject to an across-the-board sequester and 21.2 percent for defense programs, assuming
no Presidential exemption of military personnel accounts. The defense sequester would be 34.9 percent
if the President decides to exempt the military personnel accounts.
Part VI provides descriptions of the potential effects on specific programs of a $100 billion
sequester, roughly the reduction required after the baseline has been adjusted for the food stamp
anomaly. The actual reductions by program for a $100 billion sequester are provided in Appendices
C and D.

Changes Since January
As detailed in Table 6, the G-R-H baseline deficit estimate increased by $63.8 billion since January.
The changes are for the same economic and technical reasons as discussed in Parts I, II, and III,
with the exception of adjustments associated with the food stamp program (which, by law, must be
assumed to expire in the G-R-H baseline), the Census Bureau, and RTC.
11

Table 6. MID-SESSION REVIEW: CHANGE IN G-R-H
BASELINE FOR 1991
(In billions of dollars)
Receipts
January estimates ..........................................
Changes:
Policy:
1990 supplemental appropriations ........
Other (including debt service) ................
Economic (including debt service) .............
Technical (including debt service) ..............
Subtotal, changes .................................

1,156.3

Mid-Session estimates ....................................

Outlays

Deficit

1,241.0

-84.7

-0.4
-7.2
-27.0
-34.6

0.7
1.1
16.0
11.3
29.1

-0.7
-1.6
-23.2
-38.2
-63.8

1,121.7

1,270.1

-148.4

-

Revised economic assumptions increase the G-R-H baseline deficit by a net of $23.2 billion
compared to the January estimates, and technical reestimates have increased the deficit by an
additional $38.2 billion. The baseline estimates in the initial and final G-R-H sequester reports, to
be published in August and October, respectively, are required by the Act to be based on the same
economic and technical assumptions used in the Mid-Session Review. Because OMB is precluded by
the Act from changing these baseline assumptions after the issuance of the Mid-Session Review, new
economic and technical information that may be available prior to the August and October reports
will not be reflected in those reports.
The law requires a report on deficit reduction achieved since January. The G-R-H baseline deficit
based on laws in effect on January 1, 1990, is $146.1 billion, $2.3 billion lower than the current
estimate. Thus, no net deficit reduction has been achieved since January 1st as a result of legislation
and regulations. The recently enacted Dire Emergency Supplemental Appropriations Act of 1990 (P.L.
101-302) increased the 1991 baseline deficit by $0.7 billion. Other policy actions, primarily defense
transfers, increased the deficit another $1.4 billion.

12

V. THE DEFICIT OUTLOOK
In January the President submitted to Congress a budget that proposed deficit reduction measures
that, in aggregate, would have reduced the baseline deficit estimated for 1991 by $38 billion (as
estimated in January-$41 billion as estimated with Mid-Session assumptions). For reasons discussed
above, developments since January now indicate substantially higher baseline deficit levels for 1991
and subsequent years.
The adjusted baseline deficit has increased from $100.5 billion estimated in January to $168.8
billion in this Review-without including the likely S&L costs (i.e., outlays of the Resolution Trust
Corporation). With full funding of the likely 1991 S&L case resolution costs, the adjusted consolidated
baseline deficit estimate rises to $231.4 billion. This makes it imperative that the Congress enact
substantially larger deficit reductions than were proposed in January or reflected in subsequent
Congressional action and budget resolutions.

Table 7. MID-SESSION REVIEW: CHANGE IN ADJUSTED BASELINE
(In billions of dollars)
1990
Adjusted January baseline deficit ...........
Remove RTC ..........................................
Adjusted January baseline deficit withou t
RTC .........................................................
Changes due to:
Laws and regulations 1 •••••••••••••••••••
Economics ........................................
Technicals ........................................
Subtotal, changes ........................
Adjusted baseline deficit without RTC
(Mid-Session estimate) 2 ••••••••••••••••••••••••
Include RTC (as if unconstrained) ...........
Adjusted consolidated deficit, (Mid-Session estimate-including RTC) .............

1991

1992

1993

1994

1995
-13.4

122.0
-2.3

100.5
-7.3

72.9
-*

39.2

13.1

-

-

119.7

93.2

72.9

39.2

13.1

-13.4

1.5
6.4
33.8
41.7

2.2
24.2
49.3
75.7

2.2
30.4
58.3
90.8

2.3
27.1
72.0
101.4

2.4
23.6
82.2
108.2

2.6
20.1
87.4
110.1

161.3
57.1

168.8
62.6

163.7
41.3

140.6
-5.4

121.3
-41.7

96.8
-20.0

218.5

231.4

205.0

135.2

79.6

76.8

-

Includes administrative actions.
Adjusted baseline assumes the continuation of the food stamp program and a return to normal
operating levels for the Census Bureau.
1

2

13

Table 8. MID-SESSION REVIEW: ALTERNATIVE BASELINE DEFICITS
(In billions of dollars)
1990

1991

1992

1993

1995

1994

0) G·R·H Baseline Deficit (as defined by

current law) ............................................
Adjust for outlay anomalies:
Food stamps .......................................
Census .................................................
RTC (and related FFB, SAIF) ..........
Debt service .... '" .................................
Adjusted Consolidated Baseline Deficit ..
Exclude RTC working capital and net
losses (CBO method) .............................
(2) Adjusted Baseline Deficit (CBO
method for RTC) ....................................
Exclude RTC administrative expenses
and interest ............................................
(3) Adjusted Baseline Deficit (excluding
all RTC) ..................................................
Exclude Social Security annual operating
(cash) surplus .........................................
(4) Adjusted Baseline Deficit (excluding
all RTC and Social Security operating
surplus) 1 ................................................

218.5

148.4

118.0

103.1

88.4

65.5

218.5

18.0
-1.1
62.3
3.7
231.4

19.1
-1.4
59.4
9.8
205.0

20.1
-1.5
0.2
13.2
135.2

20.9
-1.6
--41.5
13.5
79.6

21.6
-1.6
-21.8
13.1
76.8

-55.5

-52.5

-28.8

17.3

47.7

21.9

162.9

178.9

176.1

152.5

127.3

98.7

-1.6

-10.0

-12.5

-11.9

-6.0

-1.9

161.3

168.8

163.7

140.6

121.3

96.8

42.1

52.4

55.9

66.8

76.0

82.6

203.5

221.2

219.5

207.4

197.4

179.3

-

-

1 If Social Security non-cash interest transactions were entirely ofT-budget, line (4) would apply. If
non-cash interest were charged as an on-budget outlay, line (4) would be higher by:
15.8

I

21.3

I

26.8

I

32.3

I

37.6

I

43.5

Table 9. MID-SESSION REVIEW: FY'91
DEFICIT-PRE-SUMMIT CONGRESSIONAL PATH
(In billions of dollars)
1991
Adjusted consolidated baseline (including RTC and
food stamps) ........................................................................
House Budget Resolution savings (OMB estimate) 1 •••••••..•
Senate Budget Committee savings (OMB estimate) 1.........
Split-the-difference savings................................................
Pre-Summit Congressional Path Deficit ..............................

231.4
-29.6
-41.8
-35.7
195.7

NOTE: If such limited deficit reduction were likely, economic performance might falter. If a "normal" recession occurred, results would be as
follows:
Deficit effe.ct of rece~sion .........:......................................
Pre-Sumnut Path WIth RecessIOn ................................. .

I

33.7
229.4

10MB estimates exclude savings assumed in the resolution for which
the appropriate enforcement mechanism was not provided.

Presidential Policy
By early May, the deficit outlook for 1991 appeared to be increasingly troublesome. This was the
case for several reasons: economic performance was less favorable than forecast; receipt estimates
were less than forecast; S&L expenditures were rising significantly; pending Congressional budget
resolutions were inadequate; sequester estimates were reaching extremely high levels; and the prospect
of unproductive legislative stalemate loomed large-if matters were left to business as usual.
Accordingly, the President sought to advance Congressional movement toward more ambitious
and more timely deficit reduction-by calling for special deficit reduction negotiations. In calling for
14

such negotiations, the President stated: ''We are fortunate that the economy continues to grow. But
it is important to act while the economy is still growing, for growth is not as strong or secure as it
should be." After a series of meetings with Congressional leaders, the President and the Bipartisan
Congressional Leadership agreed, on May 9, to commence deficit reduction negotiations through a
"summit" negotiating group. The leaders agreed to meet without preconditions in order to:
• reduce the deficit substantially on a multi-year basis;
• allow the economy to continue to grow; and
• avoid the adverse economic and programmatic effects of a stalemate that might otherwise
ensue.
On June 20, in the context of the Summit negotiations, the Administration proposed new deficit
reduction measures-in addition to those proposed in the January budget. The combination of the
Administration's January and June deficit reduction proposals, if enacted, would reduce the deficit
by the following amounts:
1991

1992

52.9

1993

69.7

84.5

1991-95

1995

1994

446.0

129.8

109.2

For purposes of this Mid-Session Review, these January and June deficit reduction measures
(displayed at Table 10) represent the latest official formulation of "Presidential Policy"-subject to
further negotiation in the context of the Bipartisan Summit.
Table 10. MID-SESSION REVIEW: BUDGET SAVINGS FROM
BASELINE
(In billions of dollars)
1991-95

1991

1992

1993

1994

1995

Adjusted Consolidated Baseline Deficit
(including RTC) •...•...••..••.••••..••.......•..•••..•

-231.4

-205.0

-135.2

-79.6

-76.8

-727.9

Updated Budget Policy recommendations
(excluding asset sales):
International discretionary .......................
Domestic discretionary ..............................
Defense ........................................................
Entitlements/mandatory ............................
User Fees ....................................................
Additional revenues measures ..................
Undistributed offsetting receipts ..............
Net interest .................................................
Subtotal, Budget savings .......................

-*
1.2
3.5
14.8
5.5
13.7
0.6
1.9
4Ll

0.3
0.2
8.0
20.1
3.8
11.5
0.5
5.5
50.0

0.6
1.7
14.8
24.7
5.1
4.3
0.4
9.1
60.9

0.5
3.3
22.6
29.2
3.3
6.9
0.7
12.9
79.5

0.7
5.9
29.6
33.3
4.8
5.9
0.4
17.2
97.9

2.2
12.4
78.5
122.2
22.6
42.3
2.7
46.6
329.3

Additional 6/20 Proposals:
Domestic discretionary ..............................
Defense ........................................................
Entitlements:
Medicare ..................................................
Medicaid ..................................................
Other entitlements .................................
User Fees ....................................................
Additional interest savings .......................
Subtotal, additional savings ..................

4.2
3.6

6.0
5.3

8.0
6.4

9.1
7.0

9.5
7.6

36.8
29.9

0.9
0.8
Ll
0.6
0.5
11.7

1.2
1.6
1.5
2.4
1.7
19.7

1.6
1.9
1.7
1.0
3.1
23.7

2.0
2.2
2.0
2.9
4.6
29.7

2.3
2.5
2.4
1.4
6.2
31.9

7.9
9.0
8.7
8.3
16.0
116.7

Total, deficit reductions proposed ..

52.9

69.7

84.5

109.2

129.8

446.0

1.9
0.3
*

1.4
-0.1
-

1.5
-*

1.4
0.5

1.4
0.9

-

-

-

7.7
1.6
-

-176.3

-133.9

-49.2

Adjustments for G·R·H exclusions:
Include asset sales .....................................
Include Postal Service ...............................
Remove nondefense spendout adjustment
Consolidated Budget Deficit/Surplus
(including RTC) .......................................

31.5

55.4 -272.6

*$50 million or less.

15

The Administration's proposals of June 20th, although accepted in part, were not accepted in full
by the Summit negotiators. On June 26, the President and the bipartisan leadership agreed that both
the size of the deficit problem and the need for a package that can be enacted require all of the
fo11owing: entitlement and mandatory program reform; tax revenue increases; growth incentives;
discretionary spending reduction; orderly reductions in defense expenditures; and budget process
refonn-to assure that any bipartisan agreement is enforceable and that the deficit problem is brought
under responsible control.
An informal consensus (or near-consensus) has developed within the Summit that 1991 deficit
reduction measures should be approximately the same size as those proposed by the Administration
($50-55 billion). A lesser amount of savings would not likely be viewed as a credible attack on the
deficit problem; but a larger amount of savings could be counter-productive with respect to economic
growth. There is, in addition, general agreement that deficit reduction measures should grow in the
out-years, and that a specific and enforceable multi-year deficit reduction program should be negotiated
and enacted as soon as possible-preferably before the August recess. The Administration is fully
committed to the achievement of these objectives.

It is implicit in the numbers presented here that if a satisfactory multi-year Budget Summit
agreement is achieved and enacted, there will have to be a corresponding adjustment of the G-R-H
deficit targets. However, the Administration does not favor any such target adjustment independently
of the enactment of a responsible, substantial, multi-year deficit reduction program. Indeed, if a
responsible deficit reduction program is not negotiated and passed by Congress, a major sequester
will be necessary. Such a sequester should not and is not to be construed as a first choice from a
policy perspective. But it remains necessary as a fail-safe mechanism to force the successful negotiation
and achievement of a responsible deficit reduction program.

16

VI. POTENTIAL EFFECTS OF $100 BILLION SEQUESTER
If the Budget Summit negotiations do not produce a satisfactory deficit reduction program, a
large sequester will ensue. With that possibility in view, this section discusses the sequester calculations
and the potential effects of a 1991 sequester of $100 billion.
For purposes of determining the sequester amount, it seems reasonable to assume the continuation
of the food stamp program, and a return to normal operating levels for the Census Bureau. Spending
from the Resolution Trust Corporation (RTC), however, including administrative expenses and interest
payments to the Federal Financing Bank, is excluded from the baseline totals at this point-in part
because current law limits total RTC spending and in part because many believe that RTC expenditures
should be excluded from G-R-H sequester calculations. Under these assumptions, the adjusted baseline
deficit would be $168.8 billion in 1991, $104.8 billion above the $64 billion deficit target required by
the G-R-H law. Thus if no additional policy actions were taken to reduce this adjusted baseline deficit
before the initial sequester report is issued on August 25th, the President must issue an order to
withhold roughly $100 billion effective October 1st. If no policy actions were taken before the final
sequester report is issued on October 15th, a sequester of roughly $100 billion would be required. (If
RTC were authorized to spend more, and if such expenditures were included in the sequester calculation,
the likely sequester would exceed $150 billion.)

Sequestration Calculations
Reductions associated with a $100 billion sequester would be determined using the following
steps, as shown in Table 11.
Table 11. MID-SESSION REVIEW:
SEQUESTRATION CALCULATIONS FOR 1991
(Outlays in billions of dollars)
Outlays
Required deficit reduction (assumed as of July 15, 1990) ..
Defense (military personnel sequestered): 1
Thtal required reductions .................................................. .
Estimated outlays associated with across-the-board
sequesterable budgetary resources ............................... .
Uniform reduction percentage .......................................... .
Nondefense:
Total required reductions .................................................. .
Estimated savings from automatic spending .................. .
Estimated savings from special rules .............................. .
Amount remaining to be obtained from uniform percentage reductions of budgetary resources ......................... .
Estimated outlays associated with across-the-board
sequesterable budgetary resources 2 ......•...•.•••••••.........•.
Uniform reduction percentage .......................................... .

100.0
50.0
198.8
25.1%

50.0
0.1
1.8
48.1
125.3
38.4%

MEMORANDUM
Defense (military personnel exempt): 1
Total required reductions .................................................. .
Estimated outlays associated with across-the-board
sequesterable budgetary resources .............................. ..
Uniform reduction percentage .......................................... .
1
2

50.0
121.1
41.3%

Function 050, excluding FEMA programs.
Includes $5.7 billion in estimated 1992 outlays for CCC.

17

First. one-half of the required deficit reduction, $50 billion, would be assigned to defense programs
(budget accounts in the national defense function, 050, excluding the Federal Emergency Management
Agency) and the other half to nondefense programs.
Second, savings from eliminating automatic spending increases in three specific programs (the
National Wool Act, the special milk program, and vocational rehabilitation) would be applied to the
required reduction in outlays for nondefense programs. Savings from eliminating these adjustments
would be $58 million.
Third the amount of outlay savings to be obtained by applying four special rules would be
calculated'. These special rules are for guaranteed student loans, foster care and adoption assistance,
medicare and certain other health programs. The estimated savings from these special rules, $1.8
billion for 1991, would be applied toward the required spending reductions in nondefense programs.
The reductions in defense programs and remaining reductions in nondefense programs would be
taken on a uniform percentage basis, computed separately for each category. Under the adjusted
baseline estimates, the uniform percentage reductions would be 38.4 percent for nondefense programs.
For defense programs, the uniform percentage reduction would be 25_1 percent if military personnel
accounts were sequestered and 41.3 percent if these accounts were exempted by the President from
sequestration.
In the event that a sequester is required, not all programs will be subject to reductions. For
defense and nondefense programs combined, about 67 percent of total outlays are associated with
budgetary resources exempt from sequestration. The burden of sequester falls on programs that
comprise the remaining 33 percent of budget outlays. Of these outlays, defense programs account for
47 percent, special rule nondefense programs for 25 percent, and other nondefense programs account
for 28 percent.

Programmatic Impact of a $100 Billion Sequester
In addition to the sequester effects described for individual programs that follow, most, if not all,
Federal agencies would be forced to reduce staff costs through reductions-in-force, furloughs, and
hiring freezes.
Reductions-in-force are required to be implemented in an orderly way, generally using the criteria,
within Federal job classifications, of abolishing positions, thereby terminating the employment of the
most junior and non-veteran employees first. Severe reductions-in-force (of the size necessary under
this sequester) also can affect senior employees whose jobs are abolished. These employees may then
"bump" more junior employees in other job classifications for which the senior employee is qualified.
Furloughs involve telling employees not to come to work for a certain length of time and then
not paying them for that time period (e.g., involuntary leave without pay). By law, military personnel
cannot be furloughed.
Hiring freezes result in the random loss of employees and frequently the loss of the most critical
specialties and the creation of imbalances within an organization.
Legal requirements, the regulations ofthe Office of Personnel Management, and labor-management
agreements must be followed in administering both reductions-in-force and furloughs. In order to
yield any savings, the reduction-in-force process should begin at the time of the initial sequester
report on August 25th or not later than the issuance of the final sequester report on October 15th.
Termination expens~s (payments for unused annual leave, return of retirement contributions, unem.
ployment compensatIOn payments, etc.) offset the savings made possible by discontinuing employment.
Separatin~ a person at the be~nning of the year on average saves only $11,500 or 35-40 percent of
compensabon an~ benefits dUfl~g the first year after a reduction-in-force. In subsequent years, the
former employees full compensatIOn ar:d b~nefits would normally be saved. On this basis, the separation
of 100,000 employees through a reductIon-m-force would save only $1.1 billion in 1991. Many thousands
18

of dependents, businesses, and creditors who depend upon the income and purchasing power of Federal
employees would be hurt by these actions.
Agencies also would reduce travel, training, printing, contractual services, and supply and equipment purchases. Those employees who remained would be hampered in their efforts to enforce the
law, carry out agency missions mandated by law, and supply previous levels of services not only
because of the reduced number of personnel, but also because of organizational disruptions created
by adverse personnel actions and by the lack of non-personnel resources.
While the description of the effect of the sequester by program that follows is extensive, it is not
comprehensive and is intended for illustrative purposes only.

Department of Agriculture

Commodity Credit Corporation (CCC)
A sequester applies to CCC cash deficiency payments and commodity loan programs by crop year.
Based on projected 1991 crop year cash deficiency payments of $7.1 billion, a sequester would require
a reduction of $2.7 billion in deficiency payment outlays in fiscal years 1991 and 1992. The value of
1991 crop loans estimated in fiscal years 1991 and 1992 is $6.0 billion. Checks written during harvest
time to farmers who place crops under loan would be reduced by about $2.3 billion in 1991 and 1992.
Reductions in CCC outlays, net ofloan repayments would be $3.9 billion during fiscal years 1991 and
1992.
To illustrate the wide-spread impact of a sequester, note that approximately 300,000 commodity
loans and 9,000,000 deficiency payments are currently issued through the CCC. For 1989 crop
programs, the following number of farms received cash deficiency payments for crops:
Cotton ................................... .
Feed grains ........................... .
Wheat .................................... .
Rice ....................................... .

100,000
1,100,000
435,000
18,500

In addition, an estimated 175,000 dairy producers would face large assessments on their milk
marketings (the assessment of 10.4 cents per hundredweight of milk markets would reduce cash
receipts of dairy farmers by approximately $150 million), and 40,000 peanut farms and 424,000 tobacco
farms would be affected through loan proceeds reductions.
The average deficiency payment for the 1989 feed grain crop was $4,363, and the average for all
commodity loans was $13,771. A sequester would reduce the average deficiency payment by $1,658
and the average commodity loan by $5,233.

Conservation
The 1985 Food Security Act (FSA) established the Conservation Reserve Program. People who
agree to retire highly erodible land for 10 years receive an annual rental payment and financial
assistance in establishing a permanent cover on the land. Under a sequester, annual rental payments
due under the nearly 334,000 conservation reserve program contracts with farmers could not be paid
in full.
The FSA also established several new conservation initiatives that require Soil Conservation
Service (SCS) technical assistance. Under the law, SCS is responsible for defining highly erodible
lands (HEL) and wetlands and for helping farmers develop and install conservation plans that
producers will need if they are to continue receiving program benefits from the Department of
Agriculture. While conservation planning and HEL determinations have been completed, only about
30 percent of the measures have been installed. The law requires that producers install the approved
conservation systems by December 31, 1994. The "swampbuster" provisions of the FSA require that
SCS also conduct wetland determinations and inventories to help farmers recognize wetlands and
prevent unintentional conversions. The target date for completing the wetland determinations is
19

December 31, 1991 with wetland inventories being scheduled for completion by the end of 1992. In
addition to these efforts, SCS must provide technical assistance for the conservation reserve program,
for any necessary revisions to FSA plans, and for compliance reviews to ensure that conservation
plans are properly installed.
A sequester would require that SCS emphasize meeting the provisions and deadlines mandated
by FSA at the expense of other conservation operations such as the water quality initiative, soil
mapping, and plant center renovation, which are authorized but not subject to statutory deadlines.
Even with best efforts to meet the highest priority needs, it is unlikely that many of the FSA
conservation targets could be met. Continued assistance to the nearly 3,000 conservation districts
would be jeopardized and service would be reduced at most SCS field offices. Watershed planning
and construction would be delayed or terminated for many projects that address high priority national
problem areas such as local flood control, emergency assistance, land treatment, and water quality.
Cost sharing projects would be stopped or slowed down.

Cooperative State Research and Extension
Under a sequester (that must be applied uniformly), higher priority projects could not be preserved
by applying larger reductions to (or canceling) lower priority projects. Across-the-board cuts would
reduce USDA's National Research Initiative (designed to use competitive research grants to enhance
production efficiency, food safety, and environmental quality). One important component of this initiative is an effort to map the genomes of plants to permit scientists to explore more fully the genetics
of plants. Other research that would be cut could contribute to the design of more economical production
practices and to dealing with pests and disease in ways that protect the environment. A large number
of special interest research grants and construction projects would also be affected.

Farmers Home Administration (FmHA)
A sequester would impair efforts to service FmHA's portfolio of almost $59 billion in outstanding
debt. This would reduce borrowers' chances of success in meeting their loan obligations and increase
losses to the Government. In particular, efforts to restructure about $5 billion in delinquent farm
loans would be delayed, causing borrowers undue hardship and reducing the recovery value of these
loans.

Federal Crop Insurance Corporation
A sequester would reduce the funds available for commission payments on insurance policy sales
made by private insurers, causing a suspension in sales when funds run out. The reduction in the
amount of insurance sold would also reduce the premiums paid to the Government.

Federal Research (Including Buildings and Facilities)
Under a sequester (that must be applied uniformly), higher priority projects could not be preserved
by applying larger reductions to (or canceling) lower priority projects. Such reductions would reduce
USDA's Food Safety Initiative and the collection of food safety information. This information is
expressly intended for further use in setting Federal food safety policies and regulations. Other
research, such as water quality research projects included in the Water Quality Initiative and federally
sponsored human nutrition studies, also would be constrained.
The layoff of Federal scientists and technicians would impede the delivery of new technologies
to improve agricultural competitiveness and address environmental issues. Reductions in research
programs at 59 agricultural experiment stations, as well as at other colleges and universities, would
impair the ability of States to continue a full range of research to address local and regional concerns.
Most adversely affected would be the historically black 1890 colleges and Tuskegee University that
receive nearly 100 percent of their research funding from the Federal Government.
20

Foreign Agricultural Service
A sequester would compromise the execution of trade policy responsibilities, including those
related to the Uruguay round during the most crucial stage of this multilateral trade negotiation.
Reductions in our overseas presence, including attaches and counselors, would impair the collection
and reporting of agricultural intelligence and the administration of export and market development
programs. Some overseas cooperator offices would have to be closed and some smaller cooperator
organizations would have to end participation in the program. Since agriculture is the one major
"positive" in U.S. trade, these reductions would have a detrimental effect on the balance of trade.

Forest Service
A sequester would severely affect the ability of the Forest Service to maintain projected targets
for recreation, wildlife and fish habitat management, and timber sales. Timber sales could decline to
below eight million board feet. Timber preparation work would be greatly reduced, reducing 1991 and
out year sales. Receipts to the Treasury and to States and counties would decline significantly.
Economic effects, particularly in the West, would be substantial.
Certain campgrounds and other recreational facilities would be closed. Services at remaining
sites would be significantly curtailed. Efforts to protect and improve habitat to achieve recovery goals
for endangered and threatened species would be substantially reduced.
No seasonal hiring would occur, further inhibiting quick response to fire fighting emergencies
and significantly curtailing services (e.g., garbage pickup and rest room cleaning) at the recreational
facilities that remain open. Road maintenance and most other field work would all but cease, resulting
in the deterioration of roads and facilities and ultimately road closures for safety concerns.

Meat and Poultry Inspection
The Federal Meat Inspection Act (P.L. 90-201) and the Poultry Products Inspection Act (P.L.
90-449) require carcass-by-carcass inspection by Federal inspectors in establishments slaughtering
food animals. All plants engaged in further processing of meat and poultry must also be inspected by
Federal inspectors. Since meat packing plants cannot operate without these Federal inspectors, the
meat and poultry slaughter and processing industry would be forced to limit or curtail production by
the same extent that inspectors are not available. The meat and poultry industry is one of the largest
in the country. It employs over 400,000 people at 7,800 meat and poultry plants and has an annual
retail value of more than $100 billion. Many thousands more people are employed in the breeding,
raising, transportation, storage, and distribution of food animals. The economic loss from any shut
down due to a sequester would result in the loss of billions of dollars to the American economy. In
addition to the economic disruption, the limited inspection coverage would erode the high level of
safety of the nation's meat and poultry products.
A sequester would result in the absence of inspection services (and the shutting down of meat
and poultry slaughter and processing plants) for about 140 days.

Quarantine and Inspection Activities
A sequester would defeat recent progress by the Animal and Plant Health Inspection Service to
eliminate pseudorabies, brucellosis, and the Russian wheat aphid. Emergency eradication of the
Mediterranean fruit fly and grasshopper would be defeated. All 39 quarantine and inspection activities
would be reduced. This would result in serious delays in import shipments of plants and animals as
well as baggage inspection for international travel. Extensive delays or disruption of service could
cause significant losses of plants and animals in quarantine or awaiting inspection. It would also
drastically reduce the number of inspections and thus increase the risk of in troducing serious animal
and plant diseases and pests into the United States. Implementation of the pending regulations on
animal welfare might not be possible.
The Federal Grain Inspection Service would totally eliminate contractual research including
aflatoxin research outlined in the Administration's farm bill proposal. The Agricultural Cooperative
21

Service would not be able to conduct research studies in support of farmer cooperatives and the Office
of Transportation would not be able to assist in solving transportation problems related to agriculture.

Department of Commerce
National Oceanic and Atmospheric Administration (NOAA)
A sequester would severely impair several high priority research programs, in particular, NOAA's
contribution to the interagency U.S. Global Change Research program and the Coastal Ocean Science
program. Several major system procurement actions supporting the modernization of the Weather
Service would be canceled or deferred including such safety programs as the NEXRAD doppler radars
(that detect severe weather patterns) and the next generation of geostationary weather satellites.
It would severely reduce fisheries stock assessments and research, thereby requiring an extremely
conservative fisheries management regime including closure of certain grounds to commercial fishing.
Operations of the NOAA research fleet and air wing would be reduced to the minimum required to
support hurricane reconnaissance responsibilities. These actions would be required to ensure that
NOAA would be able to provide weather warnings and, on a less frequent basis than normal, weather
forecasts.

Department of Defense-Military
Military personnel exempted.-The President can exempt up to 100 percent ofthe military personnel
accounts from sequester. If he chose to do this, force readiness would be severely degraded. Because
a sizeable portion of operation and maintenance expenses are relatively fixed in the short term (e.g.,
hospitals and other required medical costs and bases that cannot be closed according to the G-R-H
law), readiness related activities (training, flying, steaming, and maintenance) could be cut by more
than 50 percent. Substantial cuts in operating rates would result. For example, the flying time for
Air Force pilots would be reduced to less than 10 hours per month (compared to the current 19.5
hours per month that is considered the minimum necessary for adequate readiness). Navy steaming
time for the deployed fleets could be reduced to less than 25 days per quarter from the normal rate
of over 50 days per quarter and many ships would rarely leave their home ports. The operating rate
reductions would require substantial adjustments in naval deployments and operations, reducing the
President's flexibility to deploy forces where needed, including drug interdiction missions. It would
also require reductions-in-force (RIFs) or furloughs of up to 80 percent of the requested level of 1.1
million civilian employees. Contractor personnel also would be reduced significantly. Roughly $8 billion
of equipment maintenance and $3 billion of real property maintenance would have to be deferred.
Modernization programs would be delayed and quantities planned for purchase would be cut.
For example, about 115 fighter aircraft could be cut from the 276 requested, six major combatant
ships could be cut from the 15 requested, and about 250 Army fighting vehicles could be cut from the
600 requested. Similar cuts would be made in all other procurement programs. Unit production costs
would increase. Research and development programs would be disrupted, resulting in delays in new
weapon programs, including high priority strategic systems.

Military personnel not exempted.-Not exempting military personnel could result in a reduction
of up to 1.0 mil1ion military, about one-half of the force. A sudden force cut of this magnitude would
severely weaken our ability to react to any major crisis. Morale and force readiness would be severely
degraded. Force structure cuts would include up to eight Army divisions (16 requested in 1991 versus
18 in 1990), the equivalent of one Marine Corps division and air wing (3 divisions and wings requested),
twelve Air Force tactical air wings (24 requested), and seven aircraft carrier battle groups (14
requested).
Force readiness would be severely degraded. Because a sizeable portion of operation and main·
tenance expenses are relatively fixed in the short term (e.g., hospitals and other required medical
costs and bases that cannot be closed accordingto the G-R-H law), readiness related activities (training,
flying, steaming, and maintenance) could be cut by over 30 percent. Substantial cuts in operating
rates would result. For example, the flying time for Air Force pilots would be reduced to less than
14 hours per month (compared to the current 19.5 hours per month that is considered the minimum

22

necessary for adequate readiness). Navy steaming time for the deployed fleets could be reduced to
less than 35 days per quarter from the normal rate of over 50 days per quarter and many ships would
rarely leave their home ports. The force reductions in conjunction with the operating rate reductions
would require substantial adjustments in naval deployments and operations, reducing the President's
flexibility to deploy forces where needed, including drug interdiction missions. It would also require
RIFs and furloughs of up to one-half of civilian employees (requested level is 1.1 million). Contractor
personnel also would be reduced significantly. Roughly $6 billion of equipment maintenance and $3
billion of real property maintenance would have to be deferred.
Modernization programs would be delayed and quantities planned for purchase would be cut.
For example, about 70 fighter aircraft could be cut from the 276 requested, four major combatant
ships could be cut from the 15 requested, and about 150 Army fighting vehicles could be cut from the
600 requested. Similar cuts would be made in all other procurement programs. Unit production costs
would increase. Research and development programs would be disrupted, resulting in delays in new
weapon programs, including high priority strategic systems.

Department of Defense-Civil
Army Corps of Engineers
The effect of a sequester on the civil works program would be twofold: substantial reductions in
personnel in labor-intensive activities, and contract delays and cutbacks in the construction and
operation and maintenance of water resources development projects.
A sequester would require reductions-in-force (RIF) affecting some 3,300 positions. A RIF of some
980 work-years is likely for the Regulatory program and General expenses accounts. Such cuts would
require delays in some, if not all, non-cost-shared preconstruction engineering and design studies;
and handicap new partnership arrangements with non-Federal cost-sharing project sponsors.
A RIF of 450 staff years would be required in the Corps labor intensive Regulatory program
under which the Corps administers Section 404 permits for dredge-and-fill activities in wetlands and
other waters, and for section 10 permits construction and other activities in navigable waterways.
These RIF's would adversely affect support for the environmental initiative to improve permit enforcement and compliance.
Construction contracts on non-cost-shared projects, including seven Inland Waterways lock and
dam projects, would be delayed and in some cases terminated. Work would be postponed for previously
funded, cost-shared new starts for which a local cooperative agreement had not been executed. Some
continuing contracts for cost-shared construction projects would be terminated.
The Operation and maintenance program would experience reductions in service delivery and
increased backlogs. Specifically, the use of seasonal labor would be minimized, the recreation season
shortened, recreational and other dredging deferred, and the number of shifts employed for the
operation of the locks on the Inland Waterways System constrained. Moreover, there would be
insufficient funds available to retain the number of employees needed to safeguard public safety and
health and to assure the integrity of project operations and work placement. Recreational facilities
would be closed and maintenance for flood control and navigation projects would be cut. Revetment
(repair of embankments) of the navigation channels of the Mississippi River and its tributaries would
be reduced by over 60 percent. Reductions would be imposed on the supervision and inspection of
work placement and the engineering and design of follow-on construction contracts. Additionally, new
programmed maintenance would be deferred, including channel and harbor dredging, lock and dam
repairs, and hydropower maintenance.

Department of Education
Pell Grants
In the major discretionary student aid program, Pell grants, the 1991 request would provide an
average award of$I,443 to 3.4 million students. Under the Pelllaw, the reduction in the appropriation
23

is translated into award reductions in accord with a specified "linear reduction" schedule that protects
awards to the poorest students. However, a sequester abo.ve 24 p~rcer:tt would reach the awards to
the poorest Pell grant recipients (those with expected famIly contrIbutIons of $200 or less).

If these students are not protected, then a sequester would eliminate grants to 1.2 million students,
at an average grant of $1,000, and reduce all remaining grants (2.2 million recipients) by $320 each,
or 22 percent of the average grant under the 1991 request.

Department of Energy (DOE)
Atomic Energy Defense Activities
A sequester would require a delay in cleanup activities, deferral of operational safety improvements,
a decimation of the ability of DOE to support future nuclear weapons production, and a serious
detriment to our nuclear deterrent. As an illustration only, the cut would require:
• A 12-month delay in cleanup activities at contaminated sites.
• DOE would not be able to meet the terms of agreements with States for obtaining compliance
with environmental requirements.
• Deferring the operating safety and environmental measures that are now being instituted for
assured safe operation of the tritium production reactors.
• Deferring work on safety improvements at weapons production facilities and suspending production of new nuclear weapons.
• Placing all plutonium processing facilities on standby at the very time we are returning weapons
to be reprocessed due to successful START negotiations.
• Deferring indefinitely all design and construction activities for new facilities, which include
improvements for environment, safety, and health deficiencies found by the DOE Tiger Teams.
• Substantially reducing nuclear weapons testing, and cutting research and development by about
25 percent, which will severely imperil initiatives to enhance nuclear weapons safety.
To effect the savings, contractor employees at the shut-down and deferred facilities would have
to be laid off. Significant numbers of personnel would have to remain, however, to ensure safety and

security offacilities. The maintenance offacilities in safe and secure conditions (even with no production)
could be somewhat compromised. Rehiring of employees after such a major disruption would take
years.
This would, in essence, force the Defense Weapons complex to proceed expeditiously to shut down
all operations, and place them in as safe a standby position as possible.

Energy Conservation Grants
Asequester would reduce the number oflow-income homes weatherized through the Weatherization
Assistance program from approximately 125,000 to approximately 85,000 homes. This decrease would
place increased burdens on State and local governments in the colder winter months and would create
a hardship for many poorer American families. The number of grants to schools and hospitals for
weatherization activities would be reduced by 250. Grants to States for energy conservation planning
and extension activities would also be reduced. Because a sequester must be applied uniformly, higher
priority research and development projects could not be preserved by applying larger reductions to
(or canceling) lower priority projects.

General Science Program
A sequester would force the cancellation or delay of facility upgrades at several sites by at least
a year. Start up ofthe Continuous Electron Beam Accelerator Facility in Virginia as well as construction
of the Relativis~ic Heavy Ion Col1ider facility at Brookhaven National Laboratory would also be
delayed. Operating levels of high energy facilities (Fermilab, Stanford Linear Accelerator Center, and

24

the Los Alamos Meson Physics Facility) would be reduced by 50 percent or more. The impact oflayoffs
of highly skilled staff would take years to reverse.

It would severely reduce research productivity at all the major national laboratories (e.g., Fermilab,
Brookhaven, and the Stanford Linear Accelerator Laboratory) and at one or more of the smaller
accelerator and research facilities. University research programs would experience large cuts in
funding.
Superconducting Super Collider (SSC)
A sequester would severely affect the basic ongoing research programs as well as the construction
of the Superconducting Super CoUider.
Virtually all site work, research and development on detector designs, and purchase of capital
equipment for detector systems would cease. Design activities would have to be scaled back significantly
from 1990, causing personnel layoffs.
Implementation of the magnet industrialization plan would be impossible. The magnet contract
award would be delayed at least one year. This action would increase the total cost of the magnets
and significantly delay the project.
Cuts of this size would send a strong negative signal to potential international collaborators about
the commitment of the United States to the project and would jeopardize their participation. The
sequester would almost certainly result in no foreign contributions to SSC construction. In this event,
the United States would have to assume the full costs after the Texas contribution.

Department of Health and Human Services
Alcohol, Drug Abuse, and Mental Health Administration (ADAMHA) Drug Abuse Programs
Activities that address the demand side of the war on drugs-research, prevention, and treatment-would be reduced by over one-third. All new research, including medications development,
would be eliminated. Prevention programs for high risk youth and pregnant women would be unable
to support new grants, and the number of continuing grants could be reduced by approximately 20
percent.
The Alcohol, Drug Abuse, and Mental Health Block Grant would fall sharply, reducing the number
of treatment slots far below Administration goals.

Centers for Disease Control
A sequester would cut the Preventive Health Care block grant, grants for sexually transmitted
disease clinics, childhood immunization grants, research on occupational safety and health, health
statistics, and HIV/AIDS grants.
A sequester would sharply reduce service to the public, including approximately 1,000,000 children
who would not be vaccinated for polio, measles, mumps, rubella, haemophilus influenza b, diphtheria,
tetanus, and pertussis. Other effects include: (1) decreased support for block grants could eliminate
over 50 percent of States' prevention programs in tuberculosis, smoking, nutrition, and chronic diseases;
(2) efforts to prevent the spread of sexJ.lally transmitted diseases would be hampered: 300,000 fewer
persons would be examined for syphilis, 2,500,000 fewer persons would be tested for gonorrhea, and
1,000,000 fewer persons would be tested for chlamydia; (3) the number of births monitored for changes
in the incidence of birth defects would decrease by 60,000; and (4) approximately 200 disease outbreaks
would not be investigated.

Food and Drug Administration (FDA)
A sequester could (1) lengthen the drug review process, (2) suspend efforts to make experimental
therapies available to patients with no therapeutic alternatives, and (3) reduce inspections of foods,

25
270-858 0

~90

- 3

Qr. 3

drugs, devices, and imports. The expedited review proposed for AIDS drugs would be slowed and field
inspections and product-related research would be reduced. The number of new orphan drug grants
awarded, laboratory equipment, and automobiles necessary for field inspections would be substantially
reduced. A sequester also would eliminate proposed enhancements for seafood and generic drug
inspections.

HN/AIDS
A sequester would seriously cripple the Public Health Service's (PHS) efforts to prevent HIV
transmission and conduct research into therapies and vaccines, reducing funding below 1989. Fewer
promising therapies could be tested, fewer education and prevention programs could be supported,
and fewer research initiatives to develop cures and therapies could be pursued. Specifically, about
400 fewer AIDS research grants could be supported, and instead of hiring the 300 additional PHS
staff requested in 1991 for fighting AIDS, staff levels probably would be reduced.

Maternal and Child Health Block Grant-Health Resources and Services Administration
A sequester would reduce these block grants $114 million below the 1986 level, and could require
the States to reduce sharply perinatal health services for pregnant women and their infants. Perinatal
services provided by the States and the ability of States to carry out new requirements contained in
the Omnibus Budget Reconciliation Act of 1989 would be severely limited. Cutbacks in perinatal
health care will have a direct effect on infant mortality and low birth weight, and will severely hamper
State efforts to establish case-management and community-based services that are accessible to the
most needy. The number of Special Projects of Regional and National Significance (SPRANS) could
be cut by a minimum of 150 (from 445). SPRANS grants focus on improved services to high risk
groups, promotion of early and continuous prenatal care, reduction in neonatal mortality, and reduced
behavioral risk activities in pregnant women.

Research at the National Institutes of Health (NIH) and the Alcohol, Drug Abuse, and Mental
Health Administration (ADAMHA)
A sequester would threaten the Federal Government's substantial commitment to pursuing new
scientific opportunities and searching for new cures and therapies and seriously curtail efforts to
invest in the nation's future health. A sequester could reduce by over 9,000 the number of Public
Health Service-supported research grants (from a total of 28,000) and cut by over 4,200 the number
of scientists receiving Federal research training assistance.

Social Security Administration (SSA)
A sequester in SSA's Limitation on Administration Expense account would force SSA to postpone
new hiring and training, defer most work not directly related to paying and processing benefits (such
as issuance of Personal Earnings and Benefit Statements to young workers and reconciHng discrepant
wage records of young workers), slow down contract payments and other deferable payments, and
postpone nearly all automation system upgrades. AI1 of these steps would affect service over time,
but not immediately.
After taking these initial cost savings steps, SSA would be forced to slow down or divert staff
resources from non-payment related services. For instance, SSA might be forced to focus resources
on taking initial applications for social security benefits and to close portions of the 800 number
telephone service for a period during the year. SSA would also cut back significantly on monitoring
of the benefit rolls (such as evaluations of continuing disability and eligibility for Supplemental
Security Income--SSI) which would increase overpayment of benefits that may be difficult to collect.
Even with these cost savings steps, SSA would be forced to develop priorities for claims related
work, perhaps trying to get benefits first to those most in need (SSI applicants) while deferring or
slowing down claims by persons with other means (high income retirement applications).
Timely payment of Social Security and Supplemental Security Income benefits to some new
applicants could be threatened. SSA would likely be able to continue to pay benefits to currently

26

entitled persons, although any post-entitlement changes, such as new addresses, would probably be
deferred or significantly slowed. New applicants, however, might have to wait longer to get their first
monthly checks.
In addition to reducing Federal staffing available to process work, a sequester of this size would
force a significant reduction in the administrative budget available for State agencies determining
disabilities for SSA. These agencies, which are budgeted to receive $800 million in 1991, make all
initial disability determinations. A reduction in their resources could slow their processing of disability
decisions.

Social Services
A sequester would result in: (1) a reduction of $715 million from the budget for Head Start (this
would fund the enrollment of 208,400 fewer poor four-year-old children from the planned 548,400);
(2) a reduction of $163 million from the budget in grants to support meals for the elderly (this would
fund 106 million fewer meals from the planned 258,740,000); and (3) a reduction of $1,065 million
from the budget for the Social Services block grant that would require States to decide whether to
make across-the-board cuts, redistribute reductions among all service areas, or eliminate certain
service categories and maintain others at current funding.

Department of Housing and Urban Development (HUD)
A sequester would:
• Reduce funds available for the extension of expiring housing contracts to a level that might
cause some low-income families to lose their housing assistance and possibly become homeless.
• Cut the number of new subsidized households assisted from 82,000 in the budget to 45,000
after the sequester.
• Force some public housing agencies (PHA's) to discontinue their efforts to eliminate drugs in
public housing, defer regular maintenance on the housing stock, increase future modernization
costs, and possibly threaten the health and safety of residents.
• Delay and hamper efforts to help end homelessness. Funding would be below 1990 and far
below the levels authorized in the McKinney Act. Long term solutions to aid the homeless
would be prevented.
• Delay efforts to assist tenants adversely affected by prepayment of HUD subsidized mortgages.
• Eliminate proposed improvements in the oversigh t and monitoring of HUD funds and jeopardize
recent improvements. These improvements are aimed at reducing waste, fraud, and abuse in
multi-billion dollar HUD programs.
• Impair management of HUD's programs because of a lack of staff-instead of focusing on
improvements in monitoring and internal control systems, HUD officials would need to manage
staff furloughs to stay within constrained funding. Such furloughs would increase further the
risk of waste, fraud and abuse in these multi-billion dollar programs.
• Delay the approval of housing construction projects due to insufficient staff.

Department of the Interior
Bureau of Indian Affairs (BIA)
A sequester would reduce funds from the 1991 request for BIA elementary and secondary school
operations by $2,200 per Indian student. At least half (about 80) of BIA's schools would close and the
school year would have to be shortened for the remaining schools.
One of BrA's two post-secondary schools would close entirely. The remaining school would have
to operate with a shortened school year. All capital expenditures on facilities improvements would be
deferred. Aid for post-secondary education would be unavailable for 6,100 Indian students (a 44
27

percent reduction from the 1991 request). Vocational education training would be denied to 1,300
Indian students.
Funding for the BIA general assistance (welfare) program would be reduced by $20 million below
the request. This would prevent the BIA from making assistance payments for almost five months
during the year to an estimated 50,000 needy individual Indians.

Bureau of Land Management (BLM)
A sequester would curtail on-the-ground management of public lands, including inspection and
enforcement of mining and mineral leasing operations, grazing, timber, recreation, wilderness, and
wildlife programs. Reduced inspection of mineral leases would result in reduced revenues from Indian
and Federal leases. A major automation initiative, the Automated Land and Mineral Records System
(ALMRS) that is part of BLM's integrated Modernization effort, would be postponed, and hazardous
materials management inventory and cleanup efforts would be drastically reduced on 270 million
acres of public land managed by BLM in 28 States. Also, discretionary fire fighting pre-suppression
activities would be cut back, possibly increasing the ultimate cost of emergency fire suppression
operations.
The America the Beautiful initiatives for BLM, including Recreation 2000 and Wildlife 2000,
would effectively be shut down. BLM's increased drug eradication and interdiction program could not
be supported. Land acquisition, maintenance and construction projects would be cut in half. The
ability to offer allowable cut timber volumes in western Oregon would be greatly reduced, thereby
significantly reducing receipts and payments to Oregon and California counties.

Bureau of Reclamation
A sequester would result in no new contract awards to continue work on water projects currently
under construction and no major rehabilitation or improvement work at existing projects. Further
adjustments would be required, including the termination of contingent construction contracts (with
payment of penalties) for existing projects. This would lead to delays in the completion of projects,
the realization of project benefits, and, in some cases, the initiation of project repayment.
Routine preventive maintenance efforts at dams, pumping plants, canals, and other project
features would be curtailed, as necessary, in order to continue the operation of project facilities. This
might result in higher project maintenance and repair costs in future years. Operations at some
existing projects might be curtailed due to a lack of funds for repairs or required maintenance to
ensure safe operation of project facilities.

Fish and Wildlife Service (FWS)
A sequester would not permit nine new National Wildlife Refuges to open in 1991 as planned,
100 refuges would be placed in caretaker status, law enforcement activities associated with drug
control on FWS lands would be severely curtailed, funding for FWS America the Beautiful land
acquisition and resource protection initiatives would be drastically reduced, and the North American
Waterfowl Management Plan (that provides the focal point for the restoration of North American
waterfowl populations) would not be implemented.
Other examples would be: (1) planned acquisition of water rights to help restore the important
?tillwater Nationai Wildlife Refuge in Nevada would not be implemented; (2) FWS would not meet
Its planned .target of restoring some 13,000 acres of high priority wetlands; (3) at least 15 national
fish hatchenes would have reduced operations and curtailed production and several hatcheries would
be closed; (4) t~e environmental contaminants program would be adversely affected, resulting in
reduced contammant clean-up on FWS lands; and (5) substantial funding to States would be delayed
for one year for the Wallop-Breaux and Pittman-Robertson fish and wildlife programs.

28

Geological Survey
A sequester would adversely affect operation of the Global Climate Change Research program;
the National Water Quality Assessment program, designed to determine the status and trends of the
Nation's ground and surface waters, and which would not become operational in 1991 as planned;
and the Advanced Cartographic System (ACS), an effort to develop and implement a new, state-of-the-art
cartographic data collection, analysis, and presentation system.
Ongoing programs adversely affected would be geologic and mineral resources investigations,
including important studies in earthquake and volcano hazards and energy resources assessments.
The collection and analysis of water resources data would be lessened, possibly resulting in voids in
various databases or delays in research dependent on such information.
Operation of approximately 675 water quality streamflow stations would be discontinued in the
Federal Data Collection and Analysis program. Approximately 3,000 water quality streamflow gauges
and as many as 180 cooperative investigations would have to be discontinued in the Federal-State
Cooperative Data Collection and Analysis program. The grant to each of the 54 State Water Resources
Research Institutes would be significantly reduced.

Historic Preservation fund
A sequester would translate into smaller grants to State historic preservation offices and to the
National Trust for Historic Preservation. Some grants might be eliminated. Fewer properties would
be nominated to and placed on the National Register of Historic Preservation; efforts to ensure that
State and local development planning and permitting recognize historic values would be reduced; and
public visitation to National Trust properties might be curtailed. Efforts that now help to ensure that
local planning and permitting recognize historic values would be eliminated.

Minerals Management Service
A sequester would cause major reductions to the auditing staff and reduce the accuracy of revenue
collections of royalties from minerals production on Federal lands. Revenues would be reduced due
to an inability to audit royalty collections effectively. In addition, there would be a reduction in
inspection staff and helicopter support needed to enforce safe and environmentally sound operations
of outer continental shelf oil and gas operations. Revenues would be reduced due to the cancellation
of new off-shore oil and gas leasing. Environmental studies and lease preparation activities would be
curtailed, leading to further delays in off-shore leasing.

National Park Service (NPS)
A sequester would severely and adversely affect NPS's ability to keep parks safe and open to the
visiting public. Park operating funds would be reduced to levels available in the mid-1970's. There
has been significant expansion of the park system since that time. Many of these newer and smaller
units would be closed to permit the "Crown Jewels" (e.g., Yellowstone, Yosemite, and the Grand
Canyon) to remain open to the public. Funding for regional repair and rehabilitation programs would
be cut to focus only on emergencies. Resource protection efforts would be continued at a suitable level
in some areas, while other areas would be essentially closed until greater resources became available.
Seasonal hiring would be eliminated and hundreds of park rangers and maintenance staff would
be furloughed. All back country areas would be closed to hikers and campers because there would be
no one to patrol the areas. Park Police efforts in urban parks, including drug law enforcement, would
be substantially curtailed. Discretionary ecological research projects, such as the effects of acid rain
and aircraft noise studies, would be suspended.
The America the Beautiful initiative for NPS covering land acquisition, resource protection, and
recreation enhancement would be severely curtailed.

29

Office of Surface Mining Reclamation and Enforcement (OSM)
A sequester would lead to reduced inspections for surface mine land reclamation activities and
oversight of State inspection activities. Reductions in State regulatory grants wo~ld endanger the
primacy of State oversight programs. OSM's abi:it~ to resp?nd to emergen~y reclamatI.on needs through
its emergency reclamation program would be hmIted. ThIS could lead to l?CreaSe~ rIsks to the health
and safety of miners and communities experiencing emergency reclamatIOn reqUIrements.

Payments to States by the Minerals Management Service
A sequester would delay a portion of the payments due to 27 States (P?marily in the West) until
1992 and disrupt planned activities. States might not have adequate fundmg for schools, roads, and
emergencIes.
The impact on the six largest payments would be:
(In millions of dollars)
1991
Budget

Wyoming .......... ................................... ........ .....
New Mexico.....................................................
Utah.................................................................
Colorado ..........................................................
California ............... .........................................
Montana ..........................................................
21 Other States ..............................................
Total.............................................................

Post
Reduction Sequester

$202
101
61
37
28
23

-$77

483

-184

$125

63
-38
38
-23
23
-14
17
-11
14
-9
19_
~_~3_1-+-_ _-12
_-+-_ _ _

299

Department of Justice

Drug Enforcement Administration (DEA)
A sequester would eliminate 1991 program enhancements, thereby crippling this element of the
President's drug strategy. Across-the-board reductions to domestic marijuana eradication programs,
State and local task forces, foreign cooperative investigations, domestic enforcement programs, and
intelligence activities would also be required. Training for State and local police officers and implementation of the Chemical Control and Trafficking Act would also be curtailed. Further, planned
purchases of investigative and automated data processing equipment and some major computer
contracts would be canceled.
In some cities and rural areas, DEA would simply have no presence. Foreign support would be
spread so thin that cooperative efforts with foreign governments would be hindered and the security
of our agents would be at great risk. All State and local programs such as task forces, training, and
laboratory support would be eliminated. The result might be increased drug trafficking because drug
dealers are quick to notice the level of effort expended by the Federal Government on law enforcement.

Federal Bureau of Investigation (FBI)
A sequester would leave all 1991 program enhancements unfunded. Funding for the President's
Financial Fraud and Crime Initiative packages implemented in 1990 would be reduced. Prosecution
of those who have perpetrated savings and loan institutions fraud would be slowed. New investigative
programs such as white collar crime investigations aimed at procurement fraud, and investigations
of Asian organized crime would be severely impaired. The foreign counterintelligence and drug
programs would be diminished substantially. Specifically, the anticipated completion of white collar
crime investigations would likely drop by 25 percent Cl,OOO-plus fewer convictions) from planned 1991
levels. The FBI's efforts directed at Asian groups would not advance in 1991 while current investigative
efforts would be cut in half. Investigations into La Cosa Nostra and other major organized crime

30

groups would be cut by 20 percent from planned 1991 levels. Major equipment purchases affecting
the fingerprint automation and field office management system programs would be canceled. Training
for State and local officers would also be curtailed.
Priority investigative programs and those in which the FBI has sole law enforcement jurisdiction
would be affected. As all equipment purchases would be foregone, agents would be inadequately
equipped to use the sophisticated investigative techniques required for complex cases. Continued use
of obsolete protective equipment would expose agents to possibly dangerous situations. The FBI would
be unable to provide adequate support for automated data processing and telecommunications operations integral to information collection and analysis in support of investigative operations. All State
and local programs, such as the Uniform Crime Report publications, laboratory analysis of evidence,
and fingerprint identification work, would be halted. It is also likely that crime and foreign intelligence
activities would increase during this period as the deterrence factor decreases.

Federal Prison System (FPS)
A sequester would prevent newly constructed prisons with 3,315 beds from becoming operational,
and force FPS to move 6,595 prisoners out of non-Federal contract facilities and into its already
overcrowded facilities, increasing overcrowding to well over 89 percent from the current level of about
70 percent. It would eliminate the staff increases (2,000 work years) necessary to address inadequate
staff levels, and require furloughing 5,600 employees. This would eliminate staff training, greatly
reduce FPS's administrative efforts, and reduce the quality and amount of food and medical services,
inmate security, and inmate supervision.
Virtually every program available to inmates within the prisons (e.g., rehabilitative and educational) would be eliminated, thereby causing FPS to "lock down" an institutions and inviting inmate
idleness, violence, and court intervention.

Immigration and Naturalization Service (INS)
A sequester would prevent INS from hiring 200 new Border Patrol staff and building new traffic
checkpoints to intercept drug and alien smugglers that are important elements of the President's
drug strategy. Such a funding level would hamper INS's border enforcement activities, processing of
travelers across our land borders, and efforts to deter illegal immigration through detention of aliens
and enforcement of employer sanctions. Such massive cutbacks would be likely to lead to major
influxes of illegal aliens that were common prior to the enactment of the Immigration Reform and
Control Act in 1986.
Even basic operations would be seriously impacted. Reductions in enforcement activities would
immobilize operations and seriously jeopardize the ability of the INS to stem the flow of illegal aliens
and the ever-increasing flow of illegal drugs. The ability of INS to detain and process criminal aliens
apprehended by the Border Patrol would be constrained because of a lack of detention officers and
funding to operate detention facilities. Investigations of major alien smuggling operations would be
seriously reduced. Major backups would be experienced at ports-of-entry. Backlogs in processing of
refugee and asylum applications as well as adjudication requests would be inevitable.

U.S. Attorneys' Office
Reduced staff resulting from a sequester would prevent litigation of any cases that would have
been litigated as a result of increased resources provided for the crime and financial institution fraud
initiatives in 1990. Specific areas that would be affected are prosecutions of narcotics cases, bankruptcy
and procurement fraud cases, and other criminal fraud prosecutions.
U.S. Attorneys would be forced to abandon almost 25 percent of all ongoing litigation designed
to obtain criminal convictions against violators of substance abuse, immigration and civil rights laws,
organized criminal groups, and tax evaders. Attorneys would slow down efforts to recover monies
from failed institutions resulting from saving and loan and bank fraud violations. All ongoing activities
for collecting monies owed to the Government would be limited. Litigation designed to defend the
Government from substantial monetary losses as a result of other types of fraud would be reduced.

31

Department of Labor
A sequester would have the following effects on Department of Labor (DOL) programs, compared
with the 1991 request:
• Some 8,000 work years would be lost across all DOL agencies, requiring reductions-in-force in
all enforcement programs. Among other effects, some 29,100 fewer work places would be
inspected by the Occupational Safety and Health Administration, 27,400 fewer mine inspections
would be initiated, increases for improving pension oversight as well as some base funding
would be eliminated, and DOL's ability to maintain its core national labor force statistical series
would be in jeopardy.
• In the DOL State grant programs area, States would close 250 or more of the 1,900 local offices
that process walk-in unemployment insurance claims and provide employment services. Staff
at remaining offices and operating hours would be reduced. Claims delays would be universal-taking up to five days in some areas; States would divert any remaining resources from
program integrity efforts and devote them to processing claims. The quality control program
would be abandoned.
• For the Job Corps, the sequester would mean reducing the program by up to 15,600 slots. This
could require closing about 39 of the existing 107 Job Corps centers, reducing the number of
centers to 68. Work on acquiring and operating the six new centers mandated by Congress
would have to cease if current centers have to be closed. As a result, no funds would be available
to operate the two new centers scheduled to open in 1991, while plans to open two new centers
in 1992 and 1993 would be postponed or curtailed. The Job Corps anti-drug initiative would
be canceled.
• Some 141,000 fewer participants would be served in the President's Job Training Partnership
Act (JTPA) training program for severely disadvantaged adults and 260,000 fewer low-income
young adults would be enrolled in the new initiatives targeted on this at-risk group. Participation
in each program would drop by about 38 percent. Implementation of the President's new JTPA
initiative would be curtailed. About 91,000 fewer displaced workers would receive readjustment
assistance in JTPA's dislocated worker program.
• Approximately 21,500 fewer subsidized job slots for low income persons age 55 and older would
be financed in the Older Americans Employment program, representing a 38 percent cut in
program participation.

Department of State
Under a sequester in operations accounts, large infrastructure related projects, such as construction
of the new Foreign Service training facility would stop, and procurement and maintenance would be
eliminated. Maintenance at over 2,200 Government-owned and long-term leased properties overseas
would fall below minimum levels, and the Department would be forced to defer the foreign affairs
community's high priority telecommunications enhancement (DOSTN) as well as important consular,
procurement, accounting and finance computer upgrades. In addition, nine embassy construction
projects at high threat posts planned to begin in 1991 would be put on hold because of a lack of
construction security funds, and plans for new construction projects would be eliminated. Major
rehabilitations of four high priority posts would also be deferred.
The Department of State would be required to either close, or significantly reduce staffing in,
the m~jority of its over 240 overseas missions. Except in a few critical instances, most diplomatic
reportmg and representational activities would stop. Public oriented activities such as consular and
visa services and trade promotion programs would either cease or be limited to only emergency
situations. Services to the public from Washington and other domestic offices in areas such as passport
issuances, munitions licensing, Freedom of Information requests, and export promotion would either
cease or be reduced to unacceptable levels.
The security of the Department's personnel, property, and classified information would be threatened by reductions in physical and technical security programs. The multi-billion dollar inventory in
overseas properties, anti-terrorism equipment, and information management systems would be left
32

vulnerable to both technical and security failures because of the lack offunds for required maintenance
and repair. Overseas inspections, including those of the newly-established Office of Security Oversigh t,
would be eliminated.
The State Department would be unable to meet U.S. treaty obligations for our assessed share of
the budgets of international organizations, thereby increasing total U.S. arrearages to over $1 billion.
This would likely result in the loss of our vote in some of the UN-affiliated and other international
organizations. In addition, U.S. effectiveness would be hurt in shaping the agendas of multilateral
organizations that manage programs such as nuclear energy safety, AIDS research, and the peaceful
resolution of armed conflicts in important regions of the world such as Central America and Middle
East. It would also reduce the U.S. ability to participate in the critical Conference on Security and
Cooperation in Europe (CSCE), "Open Skies", and other conferences that are aimed at influencing
the fundamental changes occurring in East-West relations.
Anti-narcotics efforts associated with the National Drug Control Policy in the Andean nations of
South America, overseas humanitarian assistance, and funded refugee admissions into the United
States, particularly from the Soviet Union, would be reduced. Efforts to improve anti-terrorism
programs designed to prevent the reoccurrence of disasters like that of Pan Am 103 would be hindered.

Department of Transportation
Federal Aviation Administration (FAA)
Under a sequester, the hours of operation at virtually all airport control towers and, therefore,
the number of flights between cities, would be reduced. The air traffic control system would turn into
chaos. Reductions of this magnitude would unquestionably require the airlines to cancel numerous
scheduled flights with negative financial consequences for the airline industry. Major cutbacks in the
air traffic controller work force would produce service interruptions far more extensive than those
experienced after the 1981 strike. Delays to air travelers would increase by 400-600 percent. Even
worse, a major FAA cutback and disruption in 1991 would affect air travelers for at least three years
due to recovery problems.
There would be extensive closure of facilities, including all contract towers. Over 100 control
towers would have to be taken out of service or the hours of operation drastically reduced. Implementation activity and training for modernization of the airspace system would be curtailed. Training
and hiring for the future air traffic control computer system would fall three years behind schedule.
Delays in repairing navigational aids would cause time-consuming rerouting of aircraft and
intermittent closure of some airports. Reductions in safety inspector and security staff, including
Federal air marshals, would result in fewer scheduled inspections of aircraft and airports.
Many major computer and radar contracts that are approaching the peak year of their delivery
schedules would be canceled or renegotiated. This would add several years to the schedule for
modernization the air traffic control system. Contract penalties due to stop-restart requirements of
the sequester would exceed $500 million. Critical technical skills would be lost for several years.
FAA also would have to postpone: (1) the replacement of various facilities, such as airport control
towers planned for San Diego, Chicago Midway, Kansas City, and Los Angeles and stal1 construction
already underway at Chicago O'Hare, St. Louis, and Newark; (2) upgrading computer software and
hardware used by controllers to separate aircraft, which could exacerbate the problem at some facilities
of information disappearing from controller radar screens; (3) joint development of long range radar
replacements used to ensure safe operation and separation of aircraft; (4) establishment of a voice
communications system required for the sector suite system; and (5) maintenance of many FAA
buildings and facilities, which would delay FAA work to strengthen buildings in earthquake risk areas
and to extend the service life of buildings built in the 1940's that house electronic systems. Cuts of
this size would also postpone installation of equipment needed at the new Denver airport and continued
expansion at DallasIFort Worth.

33

Installation of approximately 400 items of national airspace system equipment procured in prior
years would be delayed. This would jeopardize the safety of the air transportation system and result
in further delaying modernization of the system. Such delays would include the upgrade of radar,
communications, weather information, automated data processing, and tower and en route center
equipment.
Critically needed airport improvement and capacity enhancement programs related to providing
new capabilities directly aimed at reducing congestion in the national air system would be deferred.
This would include a slowdown in the interim plan to support the airspace system until modernization
is completed.
The FAA would be unable to follow-through with current efforts to expand its overseas security
presence and full implementation of the recommendations of the President's Commission on Aviation
Security and Terrorism would be slowed. Also, FAA would delay implementation of anti-drug activities
required by the Drug Control Act of 1988.
Select research and development contracts would be canceled or delayed. Progress on numerous
FAA research and development programs that are directly tied to safety and capacity improvements
for air traffic control computers would be delayed by more than a year. Progress on new explosive
detection technology research would continue but at a much slower rate. The President's Commission
on Airline Security and Terrorism recently urged acceleration of this research.

Federal Railroad Administration
A sequester would result in a 40 percent reduction in scheduled safety inspections of railroad
track, bridges, equipment, and operations. In addition, DOT's automated track inspection vehicle
would have to reduce planned operations from a planned 28,500 miles to 20,500 miles on passenger,
hazardous materials, and other priority routes. Federal oversight of the railroad industry's actions
to eliminate drug and alcohol usage among railroad workers would be interrupted.

Department of the Treasury
Internal Revenue Service (IRS)
A sequester would primarily affect revenue-generating enforcement activities with an estimated
revenue loss of $8.5 billion. The indirect effects on voluntary compliance produced by the perception
of a faltering IRS enforcement presence would be even greater. Taxpayer service would fall precipitously
and taxpayers would find it more difficult to complete their returns; 15 million fewer taxpayers would
receive assistance and busy signals for those seeking assistance by telephone would increase exponentially.
All computer investments, including the critical Tax System Modernization project, would be

deferre~, increasing the chance of a returns processing breakdown in the future. Returns processing

work would demand top resource priority but there would be delays in refund checks. If it takes IRS
longer than 45 days to process a refund, interest must be paid to the taxpayer. The impact of the
sequester would greatly increase these interest payments. Tax processing errors would increase as
fewer employees, struggling to meet workload, would not be able to exercise proper care and attention
to their work.
The projected loss of 9,000 workers in returns processing would prevent a closure of filing season
work (e.g., returns processing for one year would not be completed before returns for the next year
arrived). Inventories of unprocessed returns would grow into subsequent years. There would be no
participation in the war on drugs in order to preserve a focus on essential criminal tax fraud
Issues.

!RS

United States Customs Service
A sequester would eliminate all 1991 initiatives, including staffing for the southwest border,
canme enforcement teams, money laundering investigations, and financial integrity_ Additionally,
34

staffing cuts of roughly 50 percent would be required, with commensurate declines in enforcement
and commercial program effectiveness.
In practical terms, a sequester would mean fewer cargo container inspections (36 percent less
than 1990), a 120 percent increase in delays in releasing cargo, lost tariff revenues, and fewer drug
seizures. The protection afforded domestic industry by Customs enforcement efforts would erode.
Investments in the labor saving Automated Commercial Systems (ACS) program would be postponed.
Longer passenger processing delays would occur at border crossings and airports. Many ofthe smaller
ports along the northern border and other locations could be closed or face curtailed service hours.
An estimated $1 billion in revenue would be lost due to lack of adequate processing controls.
Contraband entries would expand and the war against drug imports would be severely hampered.

Department of Veterans Affairs
A sequester, compared with the 1991 request, would:
• Require significant reductions in purchases of medical and other supplies and equipment,
prevent the opening of new facilities, cancel 1991 initiatives (e.g., increases for drug abuse
treatment, quality assurance, physician and nurses pay), reduce medical care staff years by
15,600 or eight percent, and reduce the number of incidents of care (e.g., hospital stays and
outpatient visits) provided to veterans by 2.0 million;
• Reduce operating staff associated with the Veterans Benefits Administration, the National
Cemetery System, and administrative activities, forgo scheduled computer upgrades and acquisitions, and delay interments in many of the smaller national cemeteries. Staff reductions
in regional offices would be inevitable and would reduce the timeliness and quality of benefits
claims processing and the servicing of delinquent guaranteed loans below 1990 levels;
• Reduce bed levels (by 350) and clinical services in all proposed construction and renovation
projects (medical centers, regional offices, and cemeteries). Project redesigns caused by reductions
in the size and scope of these projects would delay planning and construction by at least a year
and nine months and hamper the provision of quality health care to eligible veterans; and
• Disproportionately reduce the contributory Montgomery bill program (because over half of the
educational programs for disabled veterans' dependents and vocational rehabilitation are exempt) affecting annual benefit payments ranging from $1,300 to $2,200 to nearly 125,000
veterans and service persons.

Other Agencies
Commodity Futures Trading Commission (CFTC)
A sequester would have a devastating impact on enforcement actions, especially in light of the
recent trading abuses in the Chicago futures markets. This would permit only 79 enforcement actions
to be completed compared to 124 in 1989, a reduction of 64 percent. Market surveillance would be
reduced by 25 percent at a time when additional surveillance is needed to protect hedging and pricing
functions ofthese markets. There could be increased commodities fraud as no new enforcement actions
would be undertaken. The result would be a less competitive market environment with less protection
for market participants. For example, family farmers who forward price their products with county
grain elevators would be exposed to greater market risks. CFTC's overall program output would be
reduced by one-half, reversing actions to increase and strengthen CFTC's regulatory capacity.

Environmental Protection Agency (EPA)
The major impacts of a sequester would be:
• Severe reductions in State environmental programs, which typically receive half their funding
from EPA grants;
• Cancellation of EPA's wetlands initiatives;
35

• A decreased level of corrective actions undertaken at operating hazardous waste facilities at a
time when EPA will be responsible for an expanded universe ofregulated facilities and hazardous
substances;
• Delays in the development of regulations and inability to meet court-ordered deadlines for
various regulations;
• Reduced information made available to the public because of reductions in automated data
processing funding;
• Severe limitations on EPA's ability to implement the new Clean Air Act amendments. EPA
probably could not meet the first year deadlines in the Clean Air Act amendments and technical
and financial assistance to States to implement the amendments would be severely restricted;
• Halting alJ new Superfund cleanups, undermining the public's confidence in Federal clean-up
efforts; and the Government's leverage to make the polluters pay. Decreased enforcement and
fewer cleanups funded by responsible parties, and more fund-financed cleanups. Lower cost
recoveries would prevent the fund from being replenished;
• Severe slippage in numerous Clean Water Act requirements, including monitoring of water
quality, issuance of National Pollutant Discharge Elimination System (NPDES) permits, and
development of water quality criteria;
• Serious delays in the cleanups of specific bodies such as the Great Lakes, the Chesapeake Bay,
and the 17 estuaries in the national estuary program;
• Reduction of 50 percent in air pollution enforcement activities such as stationary source inspections, notices of violation, administrative orders, and civil and criminal litigation; and
• Curtailed analysis of Toxic Release Inventory (TRI) reports, delay availability of the TRI data
base to the public, reduce resources available for data quality assurance, and eliminate enforcement actions against non-reporters.

Judicial Branch
A sequester would have the following effects:
• 30 percent of Federal defenders' cases and 100 percent of panel attorney cases would be dismissed
for failure to provide counsel, or counsel would be appointed without compensation;
• 3 percent of the estimated payments committed to pay pane] attorneys for prior year case
assignments could not be paid;
• Inmates filing new death penalty habeas corpus petitions would not have their cases reviewed
by a Federal court, or counsel would have to be appointed without compensation;
• Funds would not be available for fees of jurors for civil trials, denying the public their right to
a civil jury trial;
• Funds would not be available for fees of jurors for approximately two months of the year for
criminal trials;
• The community supervISIon programs of the probation system would suffer the burden of
personnel shortages; 52 percent of the offenders in these programs would not have their
supervision enforced;
• Testing and treatment of 19 percent of drug offenders would be terminated', and
• Expansion of home detention (electronic monitoring) of offenders could not be accomplished
resulting in increased jail costs.

National Aeronautics and Space Administration (NASA)
A sequeste: would ca~se ~ major.r.estructuring of all NASA activities. The Space Station would
be canceled (WIth a termmatlO? h~bIhty of about $600 million). In space science, technology and
aeronautics, the Moon/Mars ImbatlVe and Mission to Planet Earth would be deferred and two to

36

three major science projects under development would have to be canceled (e.g., Comet Rendezvous/Asteroid Flyby, Advanced X-Ray Astrophysics Facility). In addition, reductions would have to be made
in the operations support for spacecraft (e.g., Magellan mission to Venus). With the exception of critical
safety-related items, all facility construction and renovation would be stopped.
The 10 planned Shuttle flights during 1991 would be postponed or canceled. The eleven missions
planned for 1992 would also have to be postponed or canceled, effectively suspending Shuttle operations
until 1993. (Recovery from this suspension would entail a re-hiring and recertification ofthe contractor
work force.) The purchase of critical spare parts, the development of the Advanced Solid Rocket Motor,
and the procurement of expendable launch vehicles would be terminated. All planned safety improvements to the Shuttle would be deferred. Additional terminations or postponements would include all
shuttle engine ground testing, all orbiter modifications, all planned Shuttle equipment upgrades, and
all procurement of upper stage rockets and payload operations. Engineering laboratories and on-line
Shuttle facilities would be placed on a "caretaker" status.

National Science Foundation (NSF)
A sequester would terminate support to roughly 28,000 individuals, including senior investigators,
graduate and undergraduate students, pre-college teachers, and high school students. In addition, it
would defer or terminate all new initiatives and many existing programs, including Science and
Technology Centers, Engineering Research Centers, precollege education programs, graduate fellowships, and global change research. It would shut down the U.S. Antarctic program for 1991 operations
and defer or terminate any remaining activities in the economic competitiveness and human resources
areas.

Office of Personnel Management (OPM)
A sequester ofOPM's civilian retirement obligation limitation would: (1) increase existing backlogs
in death claims, refunds, and initial annuity payout processing (currently, the initial annuity payment
can take as long as six to nine months and lump-sum refunds about 3 months to process) and would
likely extend by three to six months the processing of initial annuity and lump-sum payments; (2)
stall design and development of the automated Federal Employees' Retirement System (FERS) project
that is meant to automate FERS retirement processing and definitely push into 1992 or beyond the
major start-up activities for the FERS automated record keeping system. This would result in the
continuing build-up of paper records for the FERS system similar to what exists for the Civil Service
Retirement System.; and (3) force cutbacks in essential processing staff training and quality assurance
activities.
OPM would eliminate all 1991 initiatives including funding for the Public Policy Scholarship,
training for front-line workers, and the Commission on the Public Service. The Presidential Management Intern Program would not be permitted to double in size as was authorized by Executive Order.
It would eliminate OPM's ability to implement pay reform, would cut current staffing levels, and
require the consolidation of area offices and the deferral ofthe acquisition of new computer equipment.
The backlog of National Agency Checks and Investigations would increase by about 32,000 cases as
OPM would not be able to provide timely investigations for agencies.
OPM would lose oversight and evaluation capacity and staffing research and development.
OPM's retirement and insurance functions would probably not possess the level of resources for
account maintenance activities, to carry out its fiduciary responsibilities, or to provide a minimally
acceptable level of services to its beneficiaries.
Civilian retirement claims processing reductions would put in jeopardy the timely payment of
monthly annuities to 2.2 million Federal civilian retirees. The typical annuitant receives a monthly
annuity of approximately $1,450 ($17,400 per annum) and may have no other source of retirement
income. Delays in the payment of annuities could prevent annuitants from being able to finance their
basic necessities.
37
270-858

o~

90 - 4

QL 3

Retirement and insurance processing times for interim payments, annuity cases, death cases and
refund claims would double and triple. Workload balances for annuity, death, refund and deposit
claims, annuity roll maintenance, and health benefits disputed claims would increase three- to ten-fold.
Congress and senior citizen advocates would strongly object to delayed processing of monthly
annuity checks. The lengthy delay in processing initial annuity payments would directly conflict with
an Administration goal and a President's Commission on Management Initiatives commitment to
expedite new retiree initial annuity payments.
Reductions in the Government Payments for Annuitants would prevent payment of the
Government's share of health premiums. A cut in enrollee payments might occur.
Front-line training initiatives would be eliminated. The time needed to fill agency job requests
would double or triple, and the Presidential Management Intern Program and other entry-level
programs designed to bring new talent into the Federal Government would be eliminated.
The time needed to process special rate requests would more than double and compliance activity
and work on classification standards would be cut by half. This would result in less qualified staff
Government-wide, thus severely degrading the quality of products and services.
OPM could not pay the Federal Employee Health Benefit carriers the Government share of
employee health insurance premiums. The result would be a cut in enrollee benefits. Reductions in
the Government Payment for Annuitants would result in the Government being negligent in meeting
its statutorily required payment on behalf of annuitants.

Railroad Retirement Board
A sequester would reduce railroad retirement supplemental annuities by $34 million. Supplemental
annuities are paid to roughly 200,000 rail retirees who have 25 or more years of railroad service.
Railroad unemployment and sickness insurance benefits would be reduced by $40 million from the
estimated $105 million. The reduction would affect the welfare of 60,000 railroad workers dependent
on unemployment and sickness benefits.

Small Business Administration
A sequester would force as many as 40 field offices to close. Small Business Assistance and
Advocacy.programs, including programs for the promotion of minorities, women and international
trade aSSIstance, would be sharply curtailed. Lending and surety bond program levels would be
reduced by more than $2.1 billion.

38

APPENDIX A! COMPARISONS WITH
CONGRESSIONAL BUDGET OFFICE ESTIMATES

The Congressional Budget Office (CBO) released revised baseline estimates on June 20, 1990.
These estimates show a 1991 baseline deficit of$232.1 billion, or $0.7 billion more than the comparable
OMB baseline deficit estimate of $231.4 billion. Both the CBO and OMB estimates assume spending
by the Resolution Trust Corporation above what is permitted under current law to address the
problems of insolvent savings and loans. Table A-I below compares the OMB and CBO baseline
estimates.

Table A-I. MID·SESSION REVIEW: COMPARISON OF OMB AND CBO
BASELINE DEFICIT ESTIMATES
(In billions of dollars)
1990

1991

1992

1993

1994

1995

OMB adjusted baseline deficit ....................

218.5

231.4

205.0

135.2

79.6

76.8

Differences:
Economic assumptions:
Lower (+)lhigher (-) receipts ................
Higher (+)Ilower (-) outlays .................
Subtotal, economic .............................

-7.2
0.1
-7.1

6.8
--4.2
2.6

26.7
1.2
27.9

50.6
10.2
60.8

64.7
21.6
86.2

67.7
35.8
103.4

Technical reestimates:
Lower (+)lhigher (-) receipts ................
Higher (+)Ilower (-) outlays:
Resolution Trust Corporation ...........
Other deposit insurance ....................
Medicare and Medicaid .. , ..................
Census Bureau ..................................
Net interest (including debt service)
Other ..................................................
Subtotal, technical ......................

7.4

-8.3

-20.0

-32.4

-38.3

-43.4

-21.1
0.6
-2.5
-*
0.3
-1.5
-16.9

7.4
2.0
-2.4
0.9
1.2
-2.8
-2.0

18.7
6.5
-2.4
1.4
3.4
-1.7
5.8

18.4
12.0
-2.0
1.4
4.3
-3.3
-1.5

11.7
8.6
-1.2
1.6
2.3
--4.2
-19.5

2.0
4.2
-*
1.7
-0.6
-5.8
--41.9

Total, economic and technical differences

-23.9

0.7

33.8

59.3

66.8

61.5

CBO June baseline deficit ...........................

194.5

232.1

238.7

194.5

146.4

138.3

*$50 million or less.

A-3

APPENDIX B: SEQUESTERABLE BASELINE AND
SEQUESTER AMOUNTS UNDER A $100 BILLION SEQUESTER
BY AGENCY AND BUDGET ACCOUNT
(Fiscal year 1991; in thousands of dollars)
Percentages Used:
Nondefense, 38.4 percent
Defense, 25.1 percent

G·R·H Sequester Amounts

G·R·H Sequester Amounts-Continued

G·R·H Sequester Amounts-Continued

(In thousands of dollars)

(In thousands of dollars)

(In thousands of dollars)

Account Title

Sequester
Base

Sequester
Amount

Account Title

Sequester
Base

Sequester
Amount

Legislative Branch

Library of Congress

Senate

Salaries and expenses (01-25--0101-503-A):
Budget Authority .........
162,954
62,574
401 (C) Authority2,261
Off. Coil. ................ ..
5,888
54,396
141,655
Outlays ...................... ..
Copyright Office: Salaries and expenses (01-250102-376-A):
4,840
Budget Authority .........
12,604
401 (C) Authority3,127
Off. Coil. ................ ..
8,144
7,236
Outlays ...................... ..
18,845

Salaries, officers and employees (01--05--0110-801A):
Budget Authority ....... ..
386,613
148,459
Outlays ...................... ..
370,762
142,373
Congressional use of foreign currency, Senate (0105--0188-801-A):
401 (C) Authority ........ ..
1,575
605
Outlays ...................... ..
1,575
605

House of Representatives
Mileage of Members (01-10-0208-801-A):
Budget Authority .........
219
84
Outlays ........................
110
42
Salaries and expenses (01-10--0400-801-A):
Budget Authority..........
552,756
212,258
530,504
203,714
Outlays ........ ................
Congressional use of foreign currency, House of
Representative (01-1 0--0488-801-A):
401 (C) Authority ..........
3,360
1,290
Outlays ................ ........
3,360
1,290

Joint Items
Capitol Guide Service (01-12--0170-801-A):
Budget Authority .. .......
1,387
533
Outlays .......... ...... ........
1,284
493
Joint Committee on Printing (01-12--0180-801-A):
Budget Authority..........
1,232
473
Outlays ........................
1,129
434
Joint Economic Committee (01-12--0181-801-A):
Budget Authority..........
3,627
1,393
Outlays ........ ................
3,446
1,323
Special Services Office (01-12--0190-801-A):
94
Budget Authority .........
246
Outlays ........................
246
94
Office of the Attending Physician (01-12-0425-801A):
Budget Authority .. .......
1,465
563
Outlays ........ ................
1,465
563
Joint Committee on Taxation (01-12--0460-801-A):
Budget Authority .........
4,499
1,728
4,049
1,555
Outlays ........................
Capitol Police Board (01-12-0474-801-A):
Budget Authority .........
57,389
22,037
Outlays ........ ................
55,667
21,376
General expenses, Capitol police (01-12--0476-801A):
Budget Authority ........ .
1,955
751
Outlays ...................... ..
1,703
654
Statements of appropriations (01-12--0499-801-A):
Budget Authority .. .......
21
8
Official mail costs (01-12--0825-801-A):
Budget Authority..........
103,176
39,620
Outlays........................
103,176
39,620

Congressional Budget Office
Salaries and expenses (01-14--0100-801-A):
Budget Authority..........
20,154
7,739
Outlays.. .............. ........
18,138
6,965

Architect of the Capitol
Office of the Architect of the Capitol: Salaries (0115--01 00-801-A):
Budget Authority .........
130,380
50,066
401 (C) AuthorityOff. Coil. ..................
120
46
Outlays ........................
98,296
37,746

Congressional Research Service: Salaries and
expenses (01-25-0127-801-A):
18,458
Budget Authority .. .......
48,067
Outlays ........................
43,597
16,741
Books for the blind and physically handicapped:
Salaries & exp (01-25-0141-503-A):
Budget Authority .........
38,716
14,867
Outlays ........................
14,441
5,545
Furniture and furnishings (01-25--0146-503-A):
2,689
1,033
Budget Authority .. .......
Outlays ................ ........
1,995
766
Gift and trust fund accounts (01-25-9971-503-A):
Obligation limitation.....
328
126

Government Printing Office
Office of Superintendent of Documents: Salaries and
expenses (01-30-0201-808-A):
Budget Authority .........
17,034
6,541
Outlays ........................
10,731
4,121
Congressional printing and binding (01-30--0203801-A):
Budget Authority ........ ..
77,263
29,669
Outlays ...................... ..
64,128
24,625
Government Printing Office revolving fund (01-304505-808-A):
Obligation limitation.....
38,383
14,739

General Accounting Office
Salaries and expenses (01-35--0107-801-A):
Budget Authority .........
381,027
146,314
331,100
127,142
Outlays........................

United States Tax Court
Salaries and expenses (01-40--01 00-752-A):
Budget Authority..........
29,436
11,303
Outlays ........................
25,580
9,823
Tax Court independent counsel, U.S. Tax Court (0140-5023-752-AA):
401 (C) Authority .... ......
10
4
Outlays ........................
10
4

Legislative Branch Boards and
Commissions
Commission on Security & Cooperation in Europe:
Salaries & exp (01-45-011 0-801-A):
Budget Authority .. .......
880
338
Outlays........................
824
316
Copyright Royalty Tribunal: Salaries and expenses
(01-45--0310-376-A):
Budget Authority .........
105
40
Outlays ........ ................
59
23
Biomedical Ethics: Salaries and expenses (01-450400-801-A):
Budget Authority .........
608
233
Outlays ........................
608
233

B-3

Account Title

Sequester
Base

Sequester
Amount

International conferences and contingencies: House,
Senate exp (01-45--0500-801-A):
401(C) Authority..........
340
131
Outlays........................
340
131
National Commission on Children (01-45-1050801-A):
Budget Authority .. .......
1,391
534
506
Outlays........................
1,319
U.S. Bipartisan Commission on Comprehensive
Health Care (01-45-11 00-801-A):
Budget Authority..........
489
188
Outlays ................ ........
489
188
National Commission of Acquired Immune Deficiency
Syndrome (01-45-1300-801-A):
Budget Authority..........
1,044
401
Outlays ........................
835
321

Office of Technology Assessment
Salaries and expenses (01-50--0700-801-A):
Budget Authority .........
19,237
Outlays ........................
15,178

Total, Legislative Branch:
Budget Authority ........ ..
2,058,663
5,285
401 (C) Authority ........ ..
401 (C) Authority14,152
Off. CoiL ................ ..
Obligation limitation .... .
38,711
1,866,644
Outlays ...................... ..

7,387
5,828

790,526
2,030
5,434
14,865
716,792

The Judiciary
Supreme Court of the United States
Salaries and expenses (02--05--0100-752-A):
Budget Authority .........
17,149
6,585
Outlays ........................
11,647
4,472
Care of the building and grounds (02-05--0103-752A):
Budget Authority..........
4,563
1,752
4,161
1,598
Outlays........................

United States Court of Appeals for
Federal Circuit
Salaries and expenses (02--07--0510-752-A):
Budget Authority..........
7,876
Outlays ........................
6,740

3,024
2,588

United States Court of International Trade
Salaries and expenses (02-15--0400-752-A):
Budget Authority .........
7,686
Outlays ........................
7,268

2,951
2,791

Courts of Appeals, District Courts and
other Svcs
Salaries and expenses (02-25--0920-752-A):
1,316,406
505,500
Budget Authority..........
401 (C) Authority ..........
7,500
2,880
Outlays ........................
1,206,095
463,140
Defender services (02-25-0923-752-A):
Budget Authority .........
127,332
48,895
Outlays ........................
123,666
47,488
Fees of jurors and commissioners (02-25--0925752-A):
Budget Authority ........ ..
60,693
23,306
Outlays ...................... ..
50,072
19,228
Court security (02-25--0930-752-A):
Budget Authority .........
60,328
23,166
14,085
Outlays ........................
36,679
Registry administration (02-25-5101-752-A):
401 (C) Authority ..........
3,500
1,344
Outlays.. ......................
3,500
1,344

G·R·H Sequester Amounts-Continued

G·R·H Sequester Amounts-Continued

G·R·H Sequester Amounts-Continued

(In thousands of dollars)

(In thousands of dollars)

(In thousands of doliars)

Account Title

Sequester
Base

Sequester
Amount

Administrative Of1ice of the United States
Courts
Salaries and e~penses (02-2&-D927-752-A)
Budget AutilOrlty
35,264
13.541
11.245
CAitlays
29,285
Judiciary Automatlor Fund (02-26--S114-7S2-A)
401(C) Authority
85,854
32,968
CAitlays
72.117
27,693

Account T,Ue

Sequester
Base

Sequester
Amount

National Critical Materials Council
160
144

Office of Administration
7,455
6,247

Federal Judicial Center
Salaries and expenses (02-3O-D928--7S2-A):
Budget Authority
13,055
CAitlays..
10,575
Total, The Judiciary:
Budget Authority ..
401 (C) Authority
Outlays.

1,650,352
96,854
1,561,805

Office of Management and Budget
5,013
4,061

633,733
37,192
599,733

Office of Federal Procurement Policy: Salaries and
expenses (03-45-0201-802-A):
1,057
Budget Authority.
2,752
938
CAitlays ........................
2,442
Salaries and Expenses (03-45-0300-B02-A):
Budget Authority ........
46,438
17.832
CAitlays .......................
42.719
16,404

Executive Office of the President
Office of National Drug Control Policy

The White House Office
Salaries and expenses (03-1O-D11G-802-A):
Budget AuthOrity.....
31,657
12,156
Outlays..
28,202
10,830

Executive Residence at the White House
Operating expenses (03-2G-021G-802-A):
Budget Authority.
7,137
401(C) AuthorityOt!. Coli.
540
Outlays...
6,720

2,741
207
2,580

Official Residence of the Vice President
Operating expenses (03-21-D211-802-A):
Budget Authority
599
Outlays. .....
408

230
157

Special Assistance to the President
Salaries and expenses (03-22-1454-B02-A).
Budget AuthOrity..
2,410
CAitlays..
2.154

925
827

Council of Economic Advisers
Salafles and expenses (03-28--190G-802-A):
Budget Authority.
3,003
Outlays.
2.702

590
531

Office of Policy Development
Salaries and expenses (03-35-220G-802-A):
Budget Authority.
3,222
CAitlays.
2,549

1,237
979

National Security Council
Salaries and expenses (03-38--2ooG-802-A):
Budget Authority.
5,584
Outlays
4,244

2,144
1,630

National Space Council
Salaries and expenses (03-39-002G-S02-A):
Budget AuthOrity
1,029
Outlays
720

Special forfeiture fund (03-47-5001-B02-A):
43,614
Budget Authority ..
113,578
21,807
56,789
Outlays .... "........

Office of Science and Technology Policy
1,138
683

Office of the United States Trade
Representative
Salaries and expenses (03-5O-D40G-802-A):
BUdget Authority.. .
18,604
CAitlays
16,567
Total, Executive Office at the President:
BUdget Authority .. ....
298,8S6
401 (C) AuthorityOff Coli. .....
540
Outlays
209,666

7,144
6.362

114,772
207
80,513

395
276

Unanticipated Needs
Unanticipated needs (04--06--Q037-B02-A):
Budget Authority.....
1,042
Outlays..
1,000

Sequester
Amount

Multilateral Assistance
Contribution to the Inter-American Development
Bank (04-12-OO72-151-A):
Budget Authority ..
98,920
37,985
Outlays ...................... "
4,920
1,889
Contribution to the International Development
Association (04-12-OO73-151-A):
Budget Authority .. .......
1.001,207
384,463
Outlays ........................
147,564
56,665
Contribution 10 the Asian Development Bank (04-120076-151-A):
Budget Authority..........
182,322
70,012
Contribution to the International Bank for
Reconstruction & De (04-12-OO77-151-A):
Budget Authority .........
51,877
19.921
Outlays ......... ".............
5,188
1,992
Contribution to the International Finance Corporation
(04-12-0078-151-A) :
77,740
29,852
Budget Authority..........
Contribution to the African Development Fund (0412-D079-151-A):
Budget Authority..........
108,940
41,833
Contribution to the African Development Bank (0412-D082-151-A):
Budget Authority ....... ".
9,892
3,799
3,799
CAitlays .............. " ... " ...
9,892
International organizations and programs (04-121005-151-A):
Budget Authority ........ .
285,651
109,690
214,239
Outlays ....... "." ..... " ... ..
82.268

Agency for International Development

Funds Appropriated to the President
1,153
1,038

Council/Office on Environmental Quality
CounCil on Environmental Quality & Ot!. of
Environmental Quali (03-31-1453--802-A):
Budget Authority..
1,536
Outlays ...................
1,382

Salaries and Expenses (03-47-1457-B02-A):
Budget Authority.........
38,545
14,801
CAitlays .....................
23,646
9,080

Salaries and expenses (03-49-2600-802-A):
Budget Authority..........
2,963
Outlays..
1,779

Sequester
Base

Foreign Military Finandng (04-09-1082-152-A):
Budget AuthOrity .........
5,030,402
1,931,674
CAidays ........................
1,766.970
678,516

Salaries and expenses (03-41-D111-802-A):
Budget Authority..
416
Outlays.
374

Salaries and expenses (03-42-0038--802-A):
Budget AuthOrity ..
19,413
CAitlays..
16,269

Account Title

400
384

Investment in Management Improvement
Investment In Management Improvement (04-080061 -B02-A):
Budget Authority...
521
200
Ou~ays
391
150

Operating expenses, Agency for fntemational
Development (04-14-1ooo-151-A):
Budget Authority .........
451,450
173,357
130.017
338,587
Outlays .......... ..............
Operating expenses of the AID Office of Inspector
General (04-14-1 007-151-A):
12,227
Budget Authority .........
31,842
9,171
Outlays ...........
23,882
American schools and hospitals abroad (04-141013-151-A)
Budget Authority .........
39,440
15,145
OuUays ........................
13,704
5,262
Development fund for Africa (04-14-1014-151-A):
Budget Authority .........
601,484
230,970
Outlays........................
48,119
18,478
Functional development assistance program (04-141021-151-A):
503,040
Budget Authority .........
1,310,000
39,539
Outlays ........................
102.966

International Security Assistance

International disaster assistance (04-14-1035-151A):
11,96 1
Budget Authority ....... ..
31,149
2,990
Outlays ...................... ..
7,787

Peacekeeping operations (04-D9-1032-152-A):
BudgetAuthority....
34.149
13,113
Outlays ....... .
23,563
9,048

Special assistance initiative (04-14-1 042-151-A):
Budget Authority..........
166,003
63,745
CAitlays ........ ................
30,628
11,76 1

Economic support fund (04-D9-1037-152-A):
Budget Authority...
4,132,559
1,586,903
800,883
Out'ays.
2,085,633
International military education and training (04--0910S1-152-A):
Budget Authority.
49,178
18,884
OuVays
24.589
9,442

Housing and other credit guaranty programs (04-144340-1 51-A):
401 (C) Authority2,m
Off. Coil. ................. .
7,216
Guaranteed Loan
39,841
Limitation ............... ..
103,752
2,m
CAitlays ...................... ..
7,216

B-4

G·R·H Sequester Amounts-Continued

G·R·H Sequester Amounts-Continued

G·R·H Sequester Amounts-Continued

(In thousands of dollars)

(In thousands of dollars)

(In thousands of dollars)

Sequester
Base

Account Title

Sequester
Amount

Private sector revolving fund (04-14-4341-151-A):
Budget Authority..........
5,187
1,992
Direct Loan
3,631
1,394
Limitation ................ .
Guaranteed Loan
Limitation ................ .
94,936
36,455

Trade and development program (04-16-1001-151-

A):
32,833
8,208

12,608
3,152

Peace Corps
Peace Corps (04-18-0100-151-A):
Budget Authority..........
173,520
141,593
Outlays ....... .................

66,632
54,372

Overseas Private Investment Corporation (04-204030-151-A):
401(C) AuthorityOff. Coil. ..................
12,912
4,958
Direct Loan
20,750
7,968
Limitation ................ .
Guaranteed Loan
Limitation ................ .
220,422
84,642
Outlays ....................... .
14,577
5,598

Inter·American Foundation
Inter·American Foundation (04-22-4031-151-A):
Budget Authority .........
17,598
6,758
401 (C) AuthorityOff. Coli .................. .
10,000
3,840
Outlays ....................... .
18,763
7,205

African Development Foundation
African Development Foundation (04-24-0700-151-

A):

160,938
2,052,610

Department of Agriculture

Office of the Secretary (05-o3-Q115-352-A):
Budget Authority..........
7,644
Outlays ........ ...............
7,589
Gifts and bequests (05-o3-8203-352-A):
401(C) Authority ..........
2,500
Outlays ........................
2,041

International Monetary Programs
Contribution to Enhanced Struct Adjust Facility of the
IMF (04-35-0005-155-A):
Budget Authority ........ .
55,777
145,253
Outlays ....................... .
1,116
2,905

Military Sales Programs
Special defense acquisition fund (04-37-4116-155-

960
784

A):

401 (C) AuthorityOff. Coil. ................. .
Outlays ....................... .

270,000
270,000

103,680
103,680

Special Assistance for Central America
Central American reconciliation assistance (04-551038-152-A):
10,547
Budget Authority..........
27,467
Outlays ........................
27,467
10,547

Total, Funds Appropriated to the President:
Budget Authority ......... 14,106,861
5,417,034
401(C) Authority115,249
Off. Coil. ................ ..
300,128
Obligation limitation .... .
110,180
286,926
Direct Loan
9,362
Limitation ................ .
24,381

Sequester
Amount

Extension Service (05-27-oS02-352-A):
Budget Authority..........
384,758
401 (C) AuthorityOff. Coil.
245
341,910
Outlays........................

147,747
94
131,293

National Agricultural Library (05-30-0300-352-A):
Budget Authority..........
15,347
5,893
Outlays ........................
11,541
4,432

National Agricultural Statistics Service
National Agricultural Statistics Service (05-33-1801352-A):
Budget Authority .........
69,980
26,872
401 (C) AuthorityOff. Coil. ..................
1,717
659
Outlays ........................
62,022
23,816

Economic Research Service
Economic Research Service (05-36-1701-352-A):
Budget Authority..........
53,087
20,385
Outlays ........................
44,849
17,222

World Agricultural Outlook Board
World agricultural outlook board (05-50-2100-352-

A):

Budget Authority ........ ..
20,764
7,973
Outlays ...................... ..
10,101
3,879
Office of budget and program analysis (05-05-0503352-A):
4,745
BUdget Authority ........ .
1,822
4,066
Outlays ...................... ..
1,561

Office of Governmental and Public Affairs
Office of Public Affairs (05-06-Q130-352-A):
Budget Authority..........
8,898
Outlays ........................
6,128

3,417
2,353

Office of the Inspector General
Office of the Inspector General (05-08-0900-352-

A):
Budget Authority ........ .
Outlays ....................... .

54,258
49,692

20,835
19,D82

A):

Budget Authority..........
Outlays ........................

2,001
1,600

768
614

Foreign Agricultural Service
Foreign Agricultural Service (05-51-2900-352-A):
Budget Authority..........
105,882
40,659
65,647
25,208
Outlays ........................

Office of International Cooperation &
Development
Scientific activities overseas (05-53-1404-3S2-A):
Budget Authority .......
912
350
Outlays........................
547
210
Office of International Corporation and Development
(05-53-3200-352-A) :
6,322
Budget Authority ........ .
2,428
Outlays ...................... ..
6,322
2,428

Office of the General Counsel

Foreign Assistance Programs

Office of the General Counsel (05-10-2300-352-A):
Budget Authority .........
22,578
8,670
Outlays........................
19,966
7,667

Expenses, PL 480, foreign assistance programs,
Agriculture (05-57-2274-151-A):
Budget Authority..........
1,020,321
391,803
Obligation limitation.....
1,587,468
609,588
Direct Loan
Limitation .................
822,763
315,941
Outlays ........................
1,020,321
391,803

A):

Obligation limitation .....
286,926
110,180
Foreign military sales trust fund (04-37-8242-155-

Sequester
Base

National Agricultural Library
2,935
2,914

Rental payments and building operations and
maintenance (05-05-o117-352-A):
Budget Authority .........
75,076
28,829
Outlays ........................
67,034
25,741
Advisory committees (05-o5-0118-352-A):
Budget Authority..........
1,561
599
Outlays ........................
1,157
444
Departmental administration (05-05-0120-352-A):
Budget AIJthority .........
23,096
8,869
Outlays ........ ................
16,835
6,465
Hazardous Waste Management (05-05-0500-304-

3,546
1,915

9,235
4,987

Account Title

Extension Service
419,110
5,345,338

Departmental Administration

Overseas Private Investment Corporation

Budget Authority ......... .
Outlays ....................... .

Guaranteed Loan
Limitation ................ .
Outlays ...................... ..

Sequester
Amount

Office of the Secretary

Trade and Development Program

Budget Authority ........ .
Outlays ....................... .

Sequester
Base

Account Title

Agricultural Research Service
Agricultural Research Service (05-16--1400-352-A):
Budget Authority..........
612,927
235,364
401 (C) AuthorityOff. Coli. ........ ..........
3,600
1,382
Outlays ........................
477,393
183,319
Buildings and facilities (05-16--1401-352-A):
4,271
Budget Authority..........
11,123
850
Outlays ........................
2,213

Cooperative State Research Service
Cooperative State Research Service (05-24-1500352-A):
398,906
153,180
Budget Authority ........ .
2,8S0
1,094
401 (C) Authority .. ..
224,857
86,345
Outlays ................ .

B-5

Agricultural Stabilization & Conservation
Service
Salaries and expenses (05--60-3300-351-A):
Budget Authority....
11,575
4,445
401 (C) AuthorityOff. Coli. ..........
23,986
9,211
Outlays ..................
24,099
9,254
Agricultural conservation pro9ram (05--60-3315302-A):
Budget Authority....
190,028
72,971
Outlays ........
87,223
33,494
Emergency conservation program (05--60-3316453-A):
Budget Authority...
31,184
11,975
Outlays ......
16,216
6,227

G·R·H Sequester Amounts-Continued
(In thousands

Account Title

01

dollars)

Sequester
Base

Sequester
Amount

G·R·H Sequester Amounts-Continued

G·R·H Sequester Amounts-Continued

(11 thousands 01 dollars)

(In thousands 01 dollars)

Account Title

Sequester
Base

Sequester
Amount

Colorado river baSin salinity control program (05-{)(}3318-304-A)
BUdget AuthOrity ...
10,775
4,138
Outlays
5,388
2,069

Very low Income housing repair grants (05-7~
2064-{)04-A)
Budget Authority .........
13,025
5,002
Ou~ays .......................
12,374
4,752

Conser~atJon reserve program (O~60-33'9-302-A):

Rural development grants (05-7~2065--452-A):
Budget Authority .........
17,095
6,564
Oullays..
2,564
985

Budget Authority.. .
Outlays

1,878,038
1,310,385

721,167
503,188

Water Bank program (05-{)(}-332(}-302-A):
Budget AuthOrity.... .
12,754
OJtlays .
1,849

4,696
710

Forestry Incentives program (0~0-3336-302-A):
Budget Authority...
12,969
4,980
Outlays..
4,260
1,644

Federal Crop Insurance Corporation
Administrative and operating expenses (O5-{)32707 -351-A)
Budget AuthOrity ..
247,677
95,108
Outlays ...
177,072
67,996

Commodity Credit Corporation
Commodity Credit Corporation Fund (O5-{)&-4336351-A):
.
401 (C) Authonty.
Direct loan
limitation .....
Guaranteed Loan
limitation..
Outlays ....

10,266,343

3,942,275

10,000,000

3,840,000

5,500,000
10,266,343

2,112,000
3,942,276

Rural Electrification Administration
Salaries and expenses (05-72-310(}-271-A):
Budget Authority.
32,939
12,649
Outlays
29.645
It ,384
Reimbursement to the Rural elec. & :el. revolv. lund
lor In!. (05-72-3101-271-A):
Budget Authority..
277,700
t 06,637
277,700
Outlays....
t06,637
Purchase of Rural Telephone Bank capital stock
(05-72-3102-452-A) :
Budget Authority....
29,916
11,488
Outlays..
29,916
11,488
Rural communication development fund (05-724142-452-A):
Budget AuthOrity .....
1,264
485
Outlays ..
1,264
485
Rural electrification and telephone revotvlng fund
(05-72-4230-271-A):
Budget AUlhofity ..
5,202
1,996
Direct loan
limitation
3.488,538
1,339,599
Direct loan Floor
1,869,739
717,980
Outlays.
234,588
90,082
Rural telephone banK (05-72-4231-452-A):
DirecI Loan
limitation ..
219,383
84.243
DlreCI Loan Floor
184,481
70.841
Outlays
9,1 IS
3,501

Farmers Home Administration
Sa ar es and expenses (05-75-2001-452-A):
BUdget AuthOrity.. .
443,S17
170,426
OJtlays
405.400
155,674
Rural housing fDr domesnc farm labor (OS-75-2004604-A)
Budgel AUlhofity
1 1,318
4,346
Outlays
113
43
Mutual and self-help hOUSing (05-75-2006-604-A):
Budgel Authorrty .
8,997
3,455
Outlays.
720
276

Rural waler and waste disposal grams (05-7~
2066-452-A):
Budget Authority .
216,423
83,106
Outlays ...................... ..
8,657
3,324
Rural com'T1umty fire protection granls (0~75-2067452-A):
Budget Authority..
3,221
1,237
Outlays......
1,450
557
Rural housing preservation grants (05-75-207(}604-A):
Budget Authority..........
19,944
7,658
OJtlays ..................
598
230
Compensation for construction defects (05-75207t-371-A):
Budget Authority .........
521
250
OJtlays .............

200
100

Agncultural Credit Insurance Fund (05-75-4140351-A):
Budget Authority ..........
3,601
1,383
401 (C) AuthorityOff. Coil. ................. .
162,151
62.266
Direct Loan
limitation .................
1,671,400
641,8t8
Guaranteed Loan
limitation
3,164,287
1,215,086
Outlays ......................
1,246,852
478,791
Rural Housing Insurance Fund (Appr.) (05-75-4141371-A):
Budget Authority ..
308,760
118,564
401 (C) AuthontyOff. Coil. ........
86,052
33,044
Obligation limitation ..
308,760
118,564
Direct loan
Umita1ion
1,985,770
762,536
Outlays.
1,232,978
473,464
Rural Development Insurance
4155-452-A):
401 (C) AuthorityOff. Coil. .............. ..
Direct loan
limitation ..........
Guaranteed Loan
limitation
Outlays.

Fund (Appr.) (05-75-

970
463,350

OJtlays ........................

177,926

201.431
32,572

Rural development loan lund (05-7&--.t233--452-A):
Budget Authonty .........
17,470
6,70B
Direct loan
limitation
20,107
7,721
Outlays...
2,011
772

Soil Conservation Service
Conservation operations (05-7f\- 1000-302-A):
Budget Authority ........
500,09t
192,035
401(C) AuthontyOff. Coil.
10,07g
3,870
Oullays ..
470,163
180,543
Resource conservation anc development (05-781010-3C2-A):
28.551
10.964
Budgel Authority.
401 (C) AuthorityOff. Col .......
t .013
389

S6Guester

Base

Sequester
Amount

25,132

9,65t

Watershed planning (0~78-106&-301-A):
Budget Authority .........
9,248
401(C) AuthorifyOff. Coli. ..................
236
OJtlayS-.......................
8,189

3,551
91
3,145

River basin surveys and investigations (05-78-1069-301-A):
Budget Authority ........
12,882
4,947
401 (C) AuthorityOff. Coil. ..................
269
103
OJtlays ........................
12,378
4,753
Watershed and flood prevention operations (0~781072-301-A):
Budget Authority ..
251,483
96,569
401(C) AurhorityOff. Coil. ..................
8,892
3,415
Outlays.,,,,,,, .... ,...........
159,975
61,430
Great plains oonservation program (05-78-2268302-A);
Budget Authority .........
21,811
8,375
401 (e) AuthorityOff. Coll ........ _......... .
20
B
Outlays ....................... .
9,500
3,648
Miscellaneous contributed funds (Water resources)
(05-78-8210-301-A):
401 (C) Authority .........
460
177
Outlays ........................
322
124
Miscel:aneous contributed funds (Conservation and
land mgmt.) (05-78--8210-302-A):
401 (C) Authority ..........
100
38
Outlays _._.... .................
70
27

Animal and Plant Health Inspection
Service
Salaries and expenses (05-79-1600-352-A):
Budget Authority..........
371,875
142,800
401 (C) AuthorityO:f Coil. ..................
29,580
11,359
OJUays ................ "......
355,523
136,521
Buildings and facilities (05-79-1601-352-A):
Budget Authority..........
14,170
Outlays ... _....................
9,934

5,441
3,815

Federal Grain Inspection Service

372

77,350
12,508
Sell-help housing land development fund (05-754222-371-A)
Direct Loan
l,m,talion.
521
200
Outlays.
130
50

B-6

Account Title

Salaries and expenses (054l0-2400-352-A):
Budget Authority .. ......
8,568
3,290
Outlays .......... _
7,363
2,827
Inspection and weighing services (05-8(}-40S0-352-

A):
401(C) AuthorityOff. Coil. .......... .
Outlays ................ .

37,164
37,164

14,271
14,271

Agricultural Marketing Service
Marketing services (0~1-2500-352-A):
Budget Authority.........
34,753
401 (C) AuthorityOff. Coil.
40,381
Outlays ..... ..................
67,842

13,345
15,506
26,051

Payments to States and possessions (05-81-2501352-A):
Budget Authority...
1,288
495
Outlays.. ..... ...............
335
129
Perishable Agricultural Commodities Act fund (Os.S1-S070-352-A):
401(C) Authority ""'"''
5,675
2,179
Outlays........................
3,754
1,442
Funds for strengthening markets, income, and supply
(section 3 (O~ 1-5209--Q05-A)
401 (C) Authority.... ......
375.277
-,44,106
Outlays ...............
44052
16,916

G·R·H Sequester Amounts-Continued

G·R-H Sequester Amounts-Continued

G·R·H Sequester Amounts-Continued

(In thousands of dollars)

(In thousands of dollars)

(In thousands of dollars)

Account Title

Sequester
Base

Sequester
Amount

Account Title

Sequester
Base

Sequester
Amount

Forest research (05-96-1104-302-A):
Budget Authority..........
156,886
401 (C) AuthorityOff.Coll. ................ ..
1,018
Outlays ...................... ..
125,922

Miscellaneous trust funds (05-81-9972-352-A):
401 (C) Authority ..........
87,689
33,673
Outlays ........................
66,898
25,689

State and private forestry (05-96-11 05-302-A):
Budget Authority .........
116,030
44,556
401 (C) AuthorityOff. Coil. .................
604
232
Outlays .......................
62,773
24,105

Office of Transportation (05-82-2800-352-A):
Budget Authority .........
2,513
Outlays ........................
2,096

965
805

Food Safety and Inspection Service
Salaries and expenses (05-83-3700-554-A):
Budget Authority .........
442,143
169,783
401 (C) AuthorityOff. Coli. ..................
38,586
14,817
Outlays ........................
446,984
171,642
Exp. & refunds, insp. & grading (05-83-8137-352-

A):
401 (C) Authority ..........
Outlays ................ ........

1,200
977

461
375

General Administration
391
48,354

Forest service fire fi9hting (05-96-1111-302-A):
Budget Authority .........
851,216
326,867
Outlays ........................
827,364
317,708

land acquisition (05-96-5004-303-A):
Budget Authority .........
66,123
Outlays ........ ...............
17,951

3,879
3,879
25,391
6,693

Food and Nutrition Service

Range betterment lund (05-96-5207-302-A):
Budget Authority .........
4,578
1,758
Outlays ........................
3,718
1,428

Cash and Commodities for selected groups (05-843503--605-A):
Budget Authority .........
244,174
93,763
Outlays........................
199,618
76,653

Acquisition of lands lor nat'l forests (05-96-5208302-A):
Budget Authori~f..........
1,103
424
Outlays .......................
627
241

Food program administration (05-84-3508--605-A):
Budget Authority..........
96,174
36,931
Outlays ........................
85,595
32,868

Acq. of lands to complete land exchanges (05-965216-302-A):
1,105
424
Budget Authority..........
Outlays ........................
969
380

Supplemental feeding programs (05-84-3510-605-

A):
Budget Authority ........ .
Outlays ....................... .

1,920
1,920

5,000
5,000

Child nutrition programs (05-84-3539--605-A):
Budget Authority..........
4,135
1,588
Outlays .......................
4,135
1,588
Temporary emergency food assistance program (0584-3635-351-A):
Budget Authority .........
51,915
19,935
Outlays ........................
30,889
11,861

Human Nutrition Information Service
Human Nutrition Information Services (05-86-3501352-A):
Budget AuthOrity ........ .
9,441
3,625
Outlays ...................... ..
2,070
5,390

Packers and Stockyards Administration
Packers and Stockyards Administration (05-0-2600352-A):
3,849
Budget Authority ........ .
10,024
3,499
Outlays ....................... .
9,112

Agricultural Cooperative Service
Agricultural Cooperative Service (05-92-3000-352-

A):
Budget Authority ....... ..
Outlays ...................... ..

4,939
3,541

1,897
1,360

Forest Service
Construction (05-96-1103-302-A):
Budget Authority .........
231,969
401(C) AuthorityOff. CoiL ................. .
2,835
Outlays ...................... ..
103,330

89,076

Operations and maintenance of quarters (05-965219-302-A):
401(C) Authority ..........
5,868
2,261
Outlays ................. .......
1,881
722
Cooperative work trust fund (05-96-8028-302-A):
401 (C) Authority ..........
329,502
126,529
Outlays ....... .................
272,256
104,546
Gifts, donations, bequests for forest and rangeland
research (05-96-8034-302-A):
Budget Authority..........
30
12
Outlays.......................
30
12
Reforestation trust fund (05-96-8046-302-A):
401 (C) Authority ..........
30,000
11,520
Outlays .......................
29,916
11,468
Forest Service permanent appropriations (05-969921-806-A):
144,931
401 (C) Authority ......... .
377,425
Outlays ...................... ..
138,215
359,935
Forest Service permanent appropriations (05-969922-302-A):
401 (C) Authority .... ......
148,164
56,895
Outlays .......................
134,761
51,748
Total, Department of Agriculture:
Budget Authority ......... 11,465,021
401 (C) Authority .......... 11,633,073
401 (C) AuthorityOff.Coli ................ ..
500,531
Obligation limitation ... ..
1,896,228
Direct loan
limitation ................. 18,671,832
2,054,220
Direct Loan Floor. .......
Guaranteed Loan
limitation .................
8,865,718
Outlays ........................ 22,969,964

1,089
39,679

B-7

Sequester
Amount

60,244

National forest system (05-96-1106-302-A):
Budget Authority .........
1,204,404
462,491
Outlays ........................
1,039,851
399,303

Working capital fund (05-96-4605-302-A):
401(C) AuthorityOfl.Coll. ................ ..
10,101
Outlays ....................... .
10,101

Sequester
Base

Department of Commerce

Milk market orders assessment fund (05-81-8412351-A):
401 (C) AuthorityOff.Coll. ................. .
41,032
15,756
Outlays ....................... .
41,032
15,756

Office of Transportation

Account Title

Salaries and expenses (06-{)5--0120-376-A):
Budget Authority .........
29,132
11,187
Outlays........................
27,908
10,717
Office of the Inspector General (06-05--0126-452-

A):
Budget Authority ......... .
Outlays ..................... ..

13,968
13,381

5,364
5,136

Economic Development Administration
Grants and loans administration (06-06-0125-452-

A):
Budget Authority ........ .
Outlays ...................... ..

26,561
23,321

10,199
8,955

Economic development assistance programs (06·06-2050-452-A):
Budget Authority ..........
76,616
199,522
Guaranteed loan
limitation ................ .
75,024
195,375
Outlays ....................... .
7,662
19,952

Bureau of the Census
Salaries and expenses (06-{)7-{)401-376-A):
Budget Authority .........
104,647
40,184
401 (C) AuthorityOff. Coli ................. ..
8,000
3,072
Outlays ....................... .
101,136
38,636
Periodic censuses and programs (06--07-{)450-376-

A):
Budget Authority .. .......
Outlays ........................

1,492,906
1,346,488

573,276
517,051

Economic and Statistical Analysis
Salaries and expenses (06-{)8-1500-376-A):
Budget Authority..........
32,387
12,437
401 (C) AuthorityOff. Coli. ..................
395
152
Outlays ........ ................
29,219
11,220

International Trade Administration
Operations and administration
Budget Authority..........
401(C) AuthorityOff. Coil. .................
Outlays ........................

(06-25--1250-376-A):
188,725
72,470
14,600
147,651

5,606
56,696

Export Administration
Operations and administration (06-30-0300-376-A):
Budget Authority..........
43,338
16,642
Outlays.......................
36,837
14,145

Minority Business Development Agency
Minority business development (06-40-{)201-376-

A):
4,402,566
4,467,100
192,204
728,152

7,169,984
788,821
3,404,436
8,820,471

Budget Authority ........ .
Outlays ...................... ..

41,484
21,074

15,930
8,092

United States Travel and Tourism
Administration
Salaries and expenses (06-44-<l700-376-A):
Budget Authority..........
14,757
401 (C) AuthorityOft. Coil. ............
1,450
Outlays........................
12,518

5,667
557
4,807

G·R·H Sequester Amounts-Continued

G·R·H Sequester Amounts-Continued

G·R·H Sequester Amounts-Continued

(In thousands 01 dollQrs)

(In thousands of dollars)

(In thousands of dollars)

Account Title

Sequester
Base

Sequester
A110unt

Operations, research, and laclllt:es (0&-48-1450306--A)
Budget Authorty
1,335,049
512,659
401 (C) Authorlty011 Coil
15,315
5,881
Outlays
923, 1~8
354.489
Coastal energy Impact lund (06--48--4315--452-A):
4011C) AuthorltyOff Coil
3,072
8000
Outlays
3,072
8000
Federal ship financing fund, fishing vessels (06--4B-4417-376--A)
401 (C) Authority
5.400
2,074
Guaranteed Loan
Limitation
480,000
184,320
Outlays
5,319
2,042
Fishing vessel and gear damage compensation fund
(06--48-5119-376--A):
Budget Authority "
109
42
1~

~

Fishermen's conringency fund (06--48-S120-376-A):
Budget Authority
765
294
Outlays ''''''''''"."
728
280
Foreign lishlng observer lund (06--48--5122-376-A):
Budget AuthOrity...
2,052
788
Outlays
1,972
757
Fisheries Promotional Fund (06--48-5124-376-A):
Budget Authority ..
2,085
801
Outlays .....................
1,149
441
Promote and develop fisheny products and research
(06--48-5 I 39-376--A):
401(C) Authority.,
61,900
23,770
Outlays ..
1,381
530
Aviation weather services program (06--48--8105-306--A):
Budget Authority .
30,825
1I ,837
Outlays ... ,............ ,.... .
30,825
11,837

Patent and Trademark Office
Salaries and expenses (06-51-1 006--376--A):
Budget Authority ,.
89,866
34,509
401 (C) AuthorltyOff. Coil.
241,620
92,782
Ou Ilays "
29 1,046
111,762

Technology Administration
Salaries and Expenses (06--53--1 100-376--A):
Budget AuthOrity
4,059
1,559
Outlays
3,491
1,341
Information products and senvices (06--53--a546-376--A):
401 (e) AuthOrity ......... ,
53,000
20,352
Outlays
39,287
15,086

National Institute of Standards and
Technology
ScientifiC and technical research and serVlces (0&55--0500--3 76--A):
Budget AuthOrity ..
171,052
65,684
Outlays ." .... " ............ ..
133.421
51,234
Workl~g

caPital fund (06--55--4650-376--A):
Bue get AuthOrity
562
Outlays"
282

Sequester
Base

Sequester
Amount

National Telecommunications and
Information Admin.

National Oceanic and Atmospheric
Administration

Ou~~s

Account Title

216
108

Salaries and expenses (06--60--0550-376--A):
Budget Authority.,
14,677
Outlays ,.
I I ,742

5,636
4,509

PubliC telecof'lmunicatlons facilities, planning and
constructlo (0 6--6 o--D 55 I -503-A):
Budget AuthOrity
20,847
8,005
Outlays.. .
2,4 I 8
929
Total, Department 01 Commerce:
Budget Authority ...
3,859,375
401 (C) AuthOrity ..
120,300
4011C) AuthorltyOff. Coil.
289,380
Guaran:eed Loan
675,375
limitation ..
3,233,803
Outlays ....

1,482,002
46,196
111,122
259,344
1,241,780

Department of Defense-Military
Military Personnel
Military personnel, Marine Corps (07--D5--1105--051A):
Budget AuthOrity..........
6,014,059
1,509,529
Outlays..
5,761,468
1,446,128
Resenve personnel, Marine Corps (07-05--11 OB-051-A):
Budget AuthOrity ....
327,402
82,178
Outlays .,.............
292,043
73,303
Resenve personnel, Navy (07--D5-1405--D51-A):
Budget AuthOrity." .. "...
1,636,910
410,864
Outlays
1,484,677
372,654
Military personnel, Navy (07--D5--1453--051-A):
Budget AuthOrity ......... 20,034,632
5,028,693
Outlays"
19, 133,074
4,802,402
Military personnel, Army (07-05--2010--051-A):
Budget Authority ..
25,499,496
6,400,373
Outlays .. ""............ 24,199,022
6,073,955
National Guard personnel, Army (07--D5-2060--051A)
Budget Authority..
3,432,349
861,520
Outlays
3,174,924
796,906
Reserve personnel, Army (07--D5--2070--051-A):
Budget Authority,
2,291,710
575,219
Outlays,
2,099,206
526,901
Military personnel, Air Force (07-05--350()""() 51-A):
Budget Authority,..
20,790,807
5,218,493
Outlays..
19,917,592
4,999,316
Reserve personnel, Air Force (07-o5-3700-051-A):
Budget Authority .........
690,134
173,224
Outlays..
645,275
161,964
National Guard personnel, Air Force (07-05--3850051-A)
Budget Authority.
1,110,441
278,721
Outlays.
1,049,366
263,391

Operation and Maintenance
Operation and maintenance, Defense agenoes (0710--01 00--051-A):
Budget Authority ,.
8,172,250
2,051,235
Outlays.
6,946,412
1,743,549
Court of Military Appeals, Defense 107-10-0104051-A)
Budget AuthOrity ..
4, I 32
1,037
Outlays..
3,471
871
Dnug Interdiction Defense (07-10--01 05--051-A):
Budget Au:hoflty .. ......
30,645
7,692
Outlays
12,258
3,077
GoodWill Games (07-1 0--01 O&-051-A):
Budget AuthOrity .......
15, 132
3,798
Outlays.....
12,106
3,039

B-8

Account Title

Sequester
Base

Sequester
Amount

Office of the Inspector General (07-1 ()....()1 07--D51-

A)
Budget Authority ..
Unobligated
BalancesDefense
Outlays ........ " ...... ..

100,866

25,317

19
75,663

18,991

5

Foreign currency fluctuations, Defense (07-10080 l--DS1-A):
Unobligated
BalancesDefense"
299,186
75,096
Environmental restoration, Defense (07-10-0810051-A):
Unobligated
BalancesDefense ..................
211
53
OuUays ........................
116
29
Humanitarian Assistance (07-10--0819--D51-A):
Budget Authority.........
10,420
2,615
Outlays ........................
7,638
1,917
Operation and maintenance, Marine Corps (07-101106--D51-A):
Budget Authority .........
1,887,886
473,859
Outlays ........................
1,374,381
344,970
Operation and maintenance, Marine Corps Reserva
(07-10-1107--D51-A):
Budget Authority ........ ..
81,807
20,534
Outlays ...................... ..
14,784
58,901
National Board for the Promotion of Rifle Practice,
Army (07-10-1705-o51-A):
Budget Authority .........
4,837
1,214
Outlays ........................
2,661
668
Operation and maintenance, Navy (07-10-1804051-A):
Budget Authority ......... 26,103,242
6,551,914
Outlays ..... "................. 20,099,496
5,044,973
Operation and maintenance, Navy Reserve (07-101806--051-A):
Budget Authority ........ .
241,648
962,741
Outlays ....................... .
608,452
152,721
Operation and maintenance, Army (07-10-2020051-A):
Budget Authority.......... 24,387,435
6,121,246
Outlays................... 19,851,372
4,982,694
Operation and maintenance, Army National Guard
(07-10-2065--051-A):
Budgel Authority..........
1,953,389
490,301
Outlays".....................
1,517,784
380,964
Operation and maintenance, Army Reserve (07-102080--D51-A)
Budget Authority..........
911,179
228,706
Outlays .... ".................
692,496
173,816
Operation and maintenance, Air Force (07-10-3400051-A):
Budget Authority ..
23,079,903
5,793,056
Outlays " ........ "" ... ,...... 17,702,286
4,443,274
Operalion and maintenance, Air Force Reserve (0710-3740--051-A):
Budget Authority .........
1,053,551
264,441
Outlays .... " ......... ".......
849,162
213,140
Operation and maintenance, Air National Guard (0710-3840-051-A):
Budget Authority..........
2,115,710
531,043
Outlays
1,707,378
428,552
Resloration of the Rocky Mountain Arsenal (07-105098--D51-A) :
401(C) Authority .. ,..
21,300
5,346
Unobligated
BalancesDefense ................
29,880
7,500
Outlays ........................
21,300
5,346

G·R·H Sequester Amounts-Continued

G·R·H Sequester Amounts-Continued

G·R·H Sequester Amounts-Continued

(In thousands of dollars)

(In thousands of dollars)

(In thousands of dollars)

Sequester
Base

Account Title

Sequester
Amount

Procurement
Procurement, Defense agencies (07-15--0300-051-

A):
Budget Authority .........
Unobligated
BalancesDefense .................. .
Outlays ....................... .

1,367,516

346,267

362,333
507,456

90,946
127,372

National Guard and Reserve Equipment (07-1f>0350-{)Sl-A) :
1,030,246
258,592
Budget Authority..........
Unobligated
Balances119,664
Defense .................. .
476,830
162,765
40,854
Outlays ...................... ..
Defense Production Act purchases (07-15--0360051-A):
Budget Authority ..........
45,30S
11,372
Unobligated
BalancesDefense...................
47,627
11,954
Chemical agents and munitions destruction, Defense
(07-15-{)390-{)51-A):
Budget Authority .........
264,898
66,469
Unobligated
BalancesDefense .................. .
17,287
4,339
OU~ays ...................... ..
107,512
26,966
Procurement, Marine Corps (07-1f>-11 09-051-A):
Budget Authority .........
1,21 0,839
303,921
Unobligated
BalancesDefense .................. .
222,381
55,618
Outlays ........................
56,479
225,016
Aircraft procurement, Navy
Budget Authority..........
Unobligated
BalancesDefense.. ........ .........
Outlays ........ ................

(07-1f>-1506-{)51-A):
9,543,OS2
2,39S,306

1,861 ,4 79
1,539,612

467,231
386,443

Weapons procurement, Navy (07-1f>-1507-{)51-A):
Budget Authority..........
5,528,022
1,387,534
Unobligated
BalancesDefense........ ...........
1,411 ,075
354,180
624,519
Outlays ........................
156,754
Shipbuilding and conversion, Navy (07-1f>-1611OSI-A):
Budget Authority.......... 11,682,207
2,932,234
Unobligated
BalancesDefense ...................
8,439,096
2,116,213
Outlays ........................
804,852
202,018
Other procurement, Navy (07-15-1810-{)51-A):
Budget Authority..........
7,861,196
1,978,180
Unobligated
BalancesDefense ...................
3,619,915
956,799
320,131
Outlays........................
1,275,421
Aircraft procurement, Army (07-15-2031-{)51-A):
Budget Authority .........
3,644,510
964,972
Unobligated
BalancesDefense ...................
702,737
176,387
Outlays........................
591,142
148,377
Missile procurement, Army (07-1f>-2032-{)51-A):
BUdget Authority .........
2,587,403
649,438
Unobligated
BalancesDefense .................. .
163,642
651,960
Outlays ...................... ..
40,654
161,968

Sequester
Base

Account Title

Sequester
Amount

Account Title

Sequester
Base

Sequester
Amount

Procurement of weapons and tracked combat
vehicles, Army (07-1 f>-2033-{)51-A):
Budget Authority..........
2,535,390
636,383
UnObligated
BalancesDefense ...................
1,097,334
275,431
Outlays ........................
36,327
9,116

Research, development, test, and evaluation, Army
(07-20-2040-{)51-A):
Budget Authority.........
5,556,752
1,394,745
Unobligated
BalancesDefense...................
351,349
68,189
Outlays ................ ........
3,013,132
756,296

Procurement of ammunition, Army (07-15-2034OS1-A):
Budget Authority..........
2,017,357
506,357
Unobligated
BalancesDefense ................. ..
246,335
61,630
Outlays ...................... ..
769,655
193,183

Research, development, test, and evaluation, Air
Force (07-20-3600-051-A):
Budget Authority.......... 14,042,510
3,524,670
Unobligated
BalancesDefense ...................
1,874,192
470,422
Outlays........................
9,152,103
2,297,178

Other procurement, Army (07-1f>-2035--051-A):
Budget Authority..........
3,615,676
907,535
Unobligated
BalancesDefense ...................
1,166,611
292,819
430,406
108,032
Outlays ........................
Aircraft procurement, Air Force (07-1 &-301 0-051A):
Budget Authority.......... 16,037,703
4,025,463
Unobligated
BalancesDefense ...................
7,132,556
1,790,272
926,610
Outlays........................
232,629
Missile procurement, Air Force (07-1f>-3020-{)51-

A):
Budget Authority .........
Unobligated
BalancesDefense ..................
Outlays ........................

6,584,129

1,652,616

2,536,951
1,879,355

637,277
471,716

Other procurement, Air Force (07-1f>-3080-051-A):
Budget Authority .........
8,839,294
2,216,663
Unobligated
Balances525,471
Defense ........ ...........
2,093,509
Outlays ................ ........
6,275,429
1,575,133

Research, Development, Test, and
Evaluation
Research, development, test, and evaluation,
Defense agencies (07-20-0400-051-A):
Budget Authority..........
6,384,756
2,104,574
Unobligated
BalancesDefense ...................
984,699
247,159
Outlays ........ ................
5,031,397
1,262,881
Developmental test and evaluation, Defense (07-200450-{)51-A):
185,706
46,612
Budget Authority ..........
Unobligated
Balances32,733
Defense .................. .
8,216
46,965
Outlays ....................... .
11,786
Operational test and evaluation, Defense (07-200460--Q51-A):
Budget Authority .........
13,259
3,328
Unobligated
BalancesDefense ...................
1,909
479
606
152
Outlays ........................
Research, development, test, and evaluation, Navy
(07-20-1319-{)51-A):
2,481,330
Budget Authority .. .......
9,885,776
Unobligated
BalancesDefense ...................
440,048
110,452
1,451,398
Outlays ........................
5,782,461

B-9

Military Construction
Base realignment and closure
0103-{)51-A):
Budget Authority .........
Unobligated
BalancesDefense ...................
Outlays........................
Military construction, Defense
0500-051-A):
Budget Authority .........
Unobligated
BalancesDefense ...................
Outlays ........................

account (07-2f>521,000

130,771

85,000
203,616

21,335
51,108

agencies (07-2f>531,243

133,342

353,696
123,891

88,778
31,097

Foreign currency fluctuations, construction (07-2f>0803-{)51-A) :
Unobligated
BalancesDefense ........ ...........
152,484
38,273
North Atlantic Treaty Organization infrastructure (0725--0804-051-A):
Budget Authority .........
419,706
105,346
Unobligated
BalancesDefense ...................
19,231
4,827
Outlays ........................
87,787
22,035
Military construction, Navy (07-25-1205-{)51-A):
Budget Authority .........
1,167,506
293,044
Unobligated
BalancesDefense ...................
420,192
105,468
Outlays ........................
261,970
65,754
Military construction, Naval Reserve (07-25--1235-OSl-A):
Budget Authority .. .......
58,977
14,803
Unobligated
BalancesDefense ...................
10,545
2,647
Outlays ........................
9,733
2,443
Military construction, Army (07-2f>-2050-051-A):
Budget Authority .........
760,686
190,932
Unobligated
BalancesDefense ........ ...........
338,004
64,839
Outlays ........................
351,581
88,247
Military construction, Army National Guard (07-2f>2085-{)51 -A):
Budget Authority..........
240,171
60,283
Unobligated
BalancesDefense .................
93,727
23,525
Outlays ........................
24,040
6,034
Military construction, Army Reserve (07-25-2086051-A):
Budget Authority .......
103,319
25,933
Unobligated
BalancesDefense .........
35,015
8,789

G·R·H Sequester Amounts-Continued

G·R·H Sequesler Amounls-Continued

G·R·H Sequester Amounts-Continued

(In thousands of dollars)

(In thousands of dollars)

(In thousands of dollars)

Account Title

Outlays

Sequester
Base

Sequester
Amount

18,675

4.687

Military construction, Air Force (07-2~300--051-A).
BJdget AUlhority
1,223,616
307,128
Unobligatijd
BalancesDefensij
558,550
140,196
Outlays
294,058
73.809
Military construction, All Force Reserve (07-2~
3730--{)S1-A):
Budget Authority..
48,140
12,083
Unobligated
BalancesDefense..
12.163
3,053
Outlays......
6,452
1,619

Military construction, Air National Guard (07-2~
3830--{)S1-A)
Budget Authority
245.173
61,689
Unobligated
BalancesDefense
104,179
26,149
Outlays
27,996
7,027

Family Housing
Family housing, Army (07-30--{)702--<>St-A):
Budget Authority
1,508}04
378,685
Unobligated
BalancesDefense . .
92,975
23,337
Outlays..
1,055,380
264,900
Family hOUSing, Navy aM Mar.ne Corps (07-300703--{)S1-A)
Budge! Aumority ..
831,850
208,794
Unobligated
BalancesDefense '...........
137,094
34,411
CXJtlays.. .... ...........
415,815
104,370
Family hOUSing, Air Force (07-30--{)704--<>51-A):
Budget Authority ....
906,544
227,543
Unobl Ig ated
BalancesDefense ...................
57,950
14,545
CXJllays ....................
564,695
141,738
Family hOUSing, Defense agencies (07-30--0706OS1-A):
Budget Authority
22,011
5,525
Unobligated
BalancesDefense ..........
70
18
OUllays......
15,116
3,794

Revolving and Management Funds
National Defense Stockpile transaction fund (07-40-455~51-A):

UnObligated
BalancesDefense ........
421,828
Air Force stock fund (07-40--4921-051-A)'
Budget AuthOrity.......
115,766
Outlays
45,149

105,879
29,057
11,332

Emergency respcnse fund (07-40-4965--{)51-A)
Budget Authority .. ......
104,200
26, ~ 54
Unobligated
BalancesDefense
100,000
25,100
Army Industrial fund (07-40--4992--{)51-A):
Budget AuthOrity ..
31,052
Outlays.....
12,110

7,794
3,040

Total, Department of Defense-Military:
Budge! AUlhorlty .......... 304,246,833
76,365,957
401(CI AuthOrity..
21,300
5,346
Unobligated
BalancesDeferse.
39,294.947
9.863,033

Account Title

Outlays

Sequester
Base

Sequester
Amount

192,162,955

48,232,903

Account Title

Mildred and Claude Pepper Foundation (08-310826-5S2-A) :
Budget Authority .........
4,001
10.420
Outlays ............ "
10,420
4,001

Cemeterial Expenses, Army
Salaries and expenses (08-05-1 BOS-70S-A):
Budget Authority .........
12,926
Outlays .......................
9,643

4,964
3,703

Corps of Engineers-Civil
Flood control, Mssissippi River and tributaries (0810-3112-301-A):
Budge! Au!hority ..........
344,96t
132.465
401 (C) AuthorityOff. Coil. ................ ..
195
75
CXJtlays ...................... ..
241,668
92,801
General investigations (08-10-3121-301-A):
Budget Authority..........
135,300
51,955
Outlays ........................
94,710
36,369
ConS1nJction, general (08-10--3122-301-A):
Budget Autho,ity ... , .
1,008,616
387,309
401(C; AuthorityOff. CoiL .....
250
96
Outlays.
403,696
155,019
Operation and maintenance, general (08-10--3123301-A);
Budget Authority.........
1,270,821
487,995
401(C) AuthorityOft. Col!..................
3,500
1,344
Outlays .......................
1,020,157
391,740
Operation and maintenance, general (08-1 0--3~ 23303-A):
Budget Authority .........
20,596
7,909
Outlays.
20,596
7,909
57,100
45,680

Flood control and coastal emergencies (08-103125-301 -A):
20,864
8,012
Budget Authority .........
Outlays ... " ........ ".......
10,432
4,006
RegulatDry Program (08-1Q--3126-301-A):
Budget Authority..
71,659
68,076
Outlays ............... ........
Revolving fund (08-10--4902-301-A):
Budget Authority
10,275
Outlays..
8,220

27,517
26,141
3,946
3,156

Inland waterways trust fund (08-10-8861-30t-A):
Budget Aut10rity.........
122.450
47,021
Outlays ........................
73.470
28,212
Harbor mamtenance trus! fund (08-10-8863-301-A):
Budget Authonty
168,884
64,851
CXJtlays... .................
168,884
64,851

Soldiers' and Airmen's Home
Operation and maintenance (08-20-8931-70~A):
Budget Authority ..
40,615
15,596
401 (C) AuthontyOtteoll.
144
55
CXJtlays................
35,682
13}02
Capital outlay (08-20-8932-70S-A):
Budget Authority
9.768
3,751
Outlays .....................
3,419
1,313

Forest & Wildlife Conservation, Mil,
Reservations
Wildlife conservation (08-30-509~303-AI:
401 (C) AUlhority..
2,200
CXJ rays
t .450

B-lO

Sequester
Amount

The Mildred and Claude Pepper
Foundation

Department of Defense-Civil

General expenses (08-10-3124-301-A):
Budget Authority .........
148,699
Outlays ........................
118,959

Sequester
Base

845
557

Total, Depar1ment of Defens&-Clvlf:
Budget Authority .........
3,396,854
401 (C) Authority ....... ".
2,200
401(C) AuthorityOff, Coil. ....... .
4,089
2,289,482
Outlays .... " ..... ..

1.304,392
845
1,570
879,160

Department of Education

Office of Elementary and Secondary
Education
Indian education (18-10--0101-501-A):
Budget Authority..........
76.729
Outlays .............
11,223
fmpact aid (18-10--0102-501-A):
Budget Authority..........
763,111
Outlays........................
614,498

29,464
4,310
293,035
235,967

Compensatory education for the disadvantaged (181M900--501-A):
Budget Autho,ity .........
5,593,832
2,148,031
Outlays ....... ................
671,260
257,764
School improvement programs (18-10--1000-501-

A):
Budget Authority .........
Ou lIays .......... ...... ........

1,477,227
177,264

567,2S5
68,069

Off. of Bilingual Ed. & Minority Languages
Affairs
Bilingual and Immigrant Educalion (18-15-1300S01-A),
Budget Authority .........
196,598
75,494
23,591
9,059
Outlays " ............. ".......

Office of Special Education &
Rehabilitative Svcs.
Education for the handicapped (1 8-20~300--501-

A)
Budget Authority .........
Outlays ............... .......

2,141,575
264,558

822,365
101,590
Vocational rehabifitation (18-2M301-506-A):
Budget Authority ..........
262,285
100,717
Outlays .... "...............
201,959
77,552
Vocational rehab split for G·R·H: ASI (G·R·H) (1820--<>301-506-1):
Budget AuthorityASI ......................... ..
68,782
68,782
Outlays ......... .
52,962
52,962
Special institutio~s for me handicapped (Gallaudet)
(18-20--{)S04-501-C):
Budget Authority..........
21,629
8,306
Outlays ..................
20,331
7,807
Special inslltutions for the handicapped (APHB) (1820--<>604-501-0) :
Budget Authority .........
5,901
2,266
CXJtlays .. " ""............
5,901
2,266
Special institu:ions for the handicapped (NTIO) (1820--0604-502-B) :
Budget Authority .........
37,585
14,433
Outlays. ................
36,164
13,887
SpeCial Institutions for the handicapped (Gallaudet)
(18-20--<>604-502-C):
Budget Authority
48,854
18}60
Outlays
46,959
18,032

G·R·H Sequester Amounts-Continued

G·R·H Sequester Amounts-Continued

G·R·H Sequester Amounts-Continued

(In thousands of dollars)

(In thousands of dollars)

(In thousands of dollars)

Account Title

Sequester
Base

Sequester
Amount

Office of Vocational and Adult Education
Vocational and adult education (18-30-0400-501-

A):
Budget Authority ......... .
401 (C) Authority ......... .
Ou~ays ....................... .

449,131
2,745
54,226

1,169,613
7,148
141,213

401(C) AuthorityOff. Coil. ................. .
401(C) AuthoritySpec. Rules ............ .
Direct Loan
Limitation ................ .
Outlays ....................... .

Office of Postsecondary Education
Student financial assistance (18-40-<l200-502-A):
Budget Authority .........
6,340,325
2,434,685
Outlays ........................
1,174,049
450,635
Higher education (18-40-0201-502-A):
249,693
Budget Authority..........
650,763
36,525
Ou~ays .............. ..........
95,1 16
Guaranteed student loans (18-40-0230-502-A):
401 (C) AuthoritySpec. Rules .............
44,573
44,573
Ou~ays ........ ................
35,658
35,658
College housing and academic facilities loans (1640-{)242-502-A):
Budget Authority ..........
31,260
12,004
Direct Loan
Limitation .................
31,260
12,004
Howard University (18-40-0603-502-A):
Budget Authority..........
190,109
73,002
Outlays........................
181,473
69,666
College housing loans (18-40-4250-502-A):
401(C) AuthorityOff. Coli. ..................
SO
19
Outlays ........................
SO
19

Office of Educational Research and
Improvement
libraries (18-50-0104-S03-A):
Budget Authority..........
142,385
54,676
Outlays........................
51,244
19,678
Research, statistics and improvement of practice
(18-50-1100-S03-A):
Budget Authority ......... .
38,109
99,242
16,367
Outlays ....................... .
42,674

Departmental Management
Office for Civil Rights (18-60-0700-751-A):
Budget Authority .........
46,733
17,945
Outlays ........................
36,769
14,695
Salaries and expenses (Elementary, secondary and
vocational ed.) (18-60-0BOO-501-A):
Budget Authority..........
22,634
B,691
Outlays........................
lB,766
7,214
Salaries and expenses (Higher education) (18-60OBOO-502-A):
Budget Authority .........
100,092
36,435
Outlays........................
63,076
31,901
Salaries and expenses (Research and general
education aids) (16-60-0600-S03-A):
Budget Authority .........
140,449
53,932
Outlays ........................
116,572
44,764
Salaries and expenses (Social services) (18-80OBOO-50S-A):
Budget Authority ..........
22,917
8,800
Outlays ........................
19,021
7,304
Office of the Inspector General (18-60-1400-751-

A):
Budget Authority..........
Outlays........................

24,212
20,096

Total, Department of Education:
Budget Authority.......... 19,606,060
Budget AuthorityAS I...........................
66,762
401 (C) Authority ..........
7,148

Sequester
Base

Account Title

Sequester
Amount

50

19

44,573

44,573

31,260
4,144,487

12,004
1,646.074

Department of Energy

Atomic Energy Defense Activities
Atomic energy defense activities (19-10-0220-053-

Account Title

10,052,119
6,533,877

2.523,oa2
1,640,003

Energy Programs
Geothermal resources development fund (19-200206-271-A):
Budget Authority .. .......
60
31
Outlays ........................
80
31
Federal Energy Regulatory Commission (19-200212-276-A):
Budget Authority .........
120,357
46,217
Outlays ........................
106,946
41,835
Fossil energy research and development (19-200213-271-A):
Budget Authority ........ .
436,081
167,455
Outlays ....................... .
174,432
66,982
Energy conservation (Energy conservation) (19-200215-272-A):
Budget Authority ........ .
363,671
147,330
76,582
29,407
Outlays ....................... .
Energy information administration (19-20-<l216276-A):
25,606
67,202
Budget Authority ....... ..
Outlays ....................... .
43,681
16,774
Economic regulation (19-20-0217-276-A):
Budget Authority..........
19.160
Outlays........................
13,412

7,357
5,150

Strategic petroleum reserve (19-20-0218-274-A):
Budget Authority .........
200,629
77,042
Outlays ........................
110,346
42.373
Naval petroleum and shale reserves (19-20-<l219271-A):
197,438
75.816
Budget Authority ........ ..
108,591
41,699
Outlays ...................... ..
General science and research activities (19-200222-251-A):
439.643
Budget Authority..........
1.144.904
332,370
Outlays ........................
865,547
Energy supply, R&D activities (19-20-<l224-271-A):
2,277.066
874,393
Budget Authority..........
Outlays........................
1.138,533
437,197
Uranium supply and enrichment activities (19-200226-271-A):
401 (C) Authority494,477
Off. Coli. ..................
1,287,700
494,477
Outlays ................ ........
1,287,700
SPR petroleum (19-20-<l233-274-A):
Budget Authority..........
224.310
401(C) Authority ..........
108,458
Outlays ........................
296,729

86,135
41,648
113,944

Sequester
Amount

Isotope production and distributlon fund (19-204180-271-A):
6,409
16.689
Budget Authority ....... ..
401 (C) Authority6,237
16,243
Off. Coil. ................ ..
6,237
Outlays ...................... ..
16.243
Payments to states under Federal Power Act (1920-51 05-606-A):
401 (C) Authority ..........
2,343
900
Nuclear waste disposal fund (19-20-5227-271-A):
Budget Authority .........
307,553
118.100
Outlays .................... ...
153,777
59.050

A):
Budget Authority..........
Outlays ........ ................

Sequester
Base

Power Marketing Administration
Operation and maintenance, Southeastern Power
Administration (19-50-0302-271-A):
Budget Authority..........
365
148
Outlays ........ ........... .....
327
126
Operation and maintenance, Southwestern Power
Administration (19-50-0303-271-A):
2,314
Budget Authority..........
6,027
1,435
Outlays ........ ......... .......
3,737
Operation and maintenance. Alaska Power
Administration (19-50-0304-271-A):
Budget Authority .. .......
1.907
732
OJtlays ........................
1,506
578
Bonneville Power Administration fund (19-50-4045271-A):
401(C) Authority17,587
45,800
Off. Coli .................. .
17,587
45,800
Outlays ....................... .
Colorado river basins power marketing fund, WAPA
(19-SO-4452-271-A):
401(C) Authority2,945
Off.Coll. ................. .
7,668
7,668
2.945
Outlays ...................... ..
Construction, rehabilitation, operation and
maintenance. WAPA (19-50-S068-271-A):
Budget Authority .........
43,085
16,545
Outlays ........................
19.388
7,445

Departmental Administration
Departmental administration (Energy information,
policy, & reg.) (19-60"'{)228-276-A):
Budget Authority..........
209.594
80,484
401 (C) AuthorityOff. Coli. ..................
183.413
70,431
OJtJays ........................
313.388
120.341
Office of the Inspector General (19-60-0236-276-

A):
Budget Authority ....... ..
Outlays ...................... ..

9,093
9,093

23,679
23,679

Total, Department of Energy:
Budget Authority ......... 15,738,793
401 (e) Authority .... ......
1.066.801
401(C) AuthorityOff. Coli. ..................
1,540,824
Outlays ........................ 11,497,457

4,706.765
409.652
591.677
3,546.019

Department of Health and Human
Services

Food and Drug Administration

9,297
7,717

Emergency preparedness (19-20-0234-274-A):
Budget Authority .. .......
6.857
2,633
OJtlays........................
5.486
2,107

Program expenses (09-, 0-0600-554-A):
Budget Authority..........
618,452
Outlays........................
519.751

7,528,726

Clean Coal Technology (19-20-0235-271-A):
401 (C) Authority..........
956.000
367,104
OJtlays ................. .......
148,002
56.633

Buildings and facilities (09-10-0603-554-A):
Budget Authority... .......
8,701
Outlays ................ .... ...
1,305

68,782
2,745

B-ll

237,486
199,584
3,341
SOl

G·R·H Sequester Amounts-Continued

G·R·H Seq uester Amounts-Continued

G·R·H Sequesler Amounts-Continued

(In thousands 01 dollars)

(In thousands of dollars)

(In thousands of dollars)

Sequester
Base

Account Title

Sequester
Amount

Re~olvlng lund for certrl,callon and other services

109-1 0-4309-554-A)'
401 (C) AuthorltyO~ Coil
Ou:lays

3,230
3,230

1,240
1.240

Health Resources and Services
Health resoulces and services (health care ser~ices)
(09-15-1l350-551 -A)
Budget Autho'ity
1.073.609
412,266
40t Ie) AuthorltyON Call..
365
140
OJtlays
561,749
215,712
Heallh resources and services 2% split (G·R-H) (0915-1l350-551-G)
Budget Author: tySpec Rules
10,550
10,550
Outlays ..
6,330
6,330
Health resources and serYrces (education and
training) (09-15-1l350-55~A):
Budget Authoflty..
221,999
65,248
Outlays ...............
123,160
47,293
VaCCln~ improvement program trust fund (O9-1!>6175-551-A):
Budget Aumori ty ....
5,127
1,969
Outlays
5,053
1,940

Indian Health
Tribal Health Admlnlstratron (09-17-0390-551-A):
Budget Authonty...
92,295
35,441
Outlays
67,303
25,644
Tribal and Federal Health SerVices 2% spilt (G-R·H)
(09-17 -1lO390-551-B)
Budget AuthorrtySpec Rules.. .
22,766
22,766
401(C) AuthoritySpec. Rules..
60
60
Outlays ..........
16,634
16,634
Indian healtlh facilrties 2% spilt (G·R·H) (09-170391-551-G):
Budget AuthoritySpec. Rules .............
, ,493
1,493
Outlays ................ ........
793
793

Centers lor Disease Control
Disease control (Health care services) (09-20-1l94~
551-A)
Budget Authority.........
1,032,778
396,587
Outlays.. ..
567,934
218,106
Disease control (Health research) (09-20--09435S2-A):
[Judget Authority "
137,404
52,763
401(C) Authority ..
346
133
Outlays .......... " ......... .
75,754
29,090

National Institutes of Health
National library of Medicine (Health research) (0925-1l307-5S2-A):
Budget Aut~orrty .. .
30,436
11,687
Outlays
18,505
7,106
National Library of Mediclr,e (Education and training)
(O9-25-{)807 -55~A):
21,140
Budget Authority ......
55,052
Outlays
33,513
12,669
Johr E. Fogar:y 11ternatlonal Center [O9-25-1l819552-A)
16,192
BUdget Authority ..
6,218
7,773
2,985
Outlays ....
BUlldl1gS and lacrlitl€s (09-25--0838-552-A):
Budget AuthOrity .. .
63.606
24,425
Oullays
12,721
4,6B5

Account Title

Sequester
Base

Sequester
Amount

Account Title

Sequester
Base

Sequester
Amount

National fnstitute on Aging (Health research) (09--250843-552-A)
91,864
239,230
Budget Authority ...
30,391
79,142
Outlays.
National InStitute on Aging [Education and tralnin~)
(09-25-{)843-55~A) :
4,009
10,441
Budget Al:thority .
1,245
3,242
Outlays .....
Nat. Ins!. Child Health and Human Development
(Health researCh) (09-25-1l844-552-A)
Budget Authority ..
443,866
170,445
Outlays.. .................
150,498
57,791
Nat. Inst. Child Health and Human Development (Ed.
& trairllng) (09-2!>-0644-553-A):
6,859
Budget Authorrty...
17,863
722
OJtlays ......................
1,880

National Institute of Dental Research (Education and
training) (09-25-{)873-553-A)
Budget Authority ........
6,542
2,512
OUtlays .....
3,568
1,370

Olflce 01 the Director (Heallh research) (09-25OB46-552-A):
Budget Authority..
104,402
40,090
401 (C) Authority ..
200
77
OUtlays...
49,269
16,919
Office of the Drrector (Education and training) (0925-1l846-5~A) :
7,755
2,978
Budget Authority ......... .
1,400
3,645
OUtlays ..
Research resources I Health research) (09-25-084B552-A):
Budget AUlhority ...... .
366,054
140,565
Outlays ........................
234,163
89,919

National Institute of Allergy & Infectious Diseases
(Ed.&train.) (09-25-1l885--553-A):
Budget Authority .........
19,133
7,347
1,109
Ou'lays .......................
2,889
National Institute of Neurological Disorders and
Stroke (09-25--0886-552-A):
Budget Authority..........
497,068
190,874
78,258
Outlays ........................
203,798
National Institute of Neurological Disorders and
Stroke (09--25--0886-553-A):
Budget Aulhority.........
14,200
5,453
Outlays ........................
5,822
2,236

Researcr resources (Education and training) (0925-1l84B-553-A)'
Budget Authority ..
2,694
1,034
Outlays..
137
53
National Cancer Institute (Health research) (09-250849-552-A)
Budget Authority .. .
1,664,923
639,330
OUtlays .....................
832,859
319,816
National Cancer Inslltute (Education and training)
(09-25-{)849-553-A):
Budget AuthOrity ....
38,649
14,916
Outlays .............. .
1,360
522
Natior,al Institute of General Medical Sciences
(Healt~ research) (09-25-1l851-552-A):
Budget Authority ..
621,699
238,732
OJtlays .....
226,553
86,996
National Institute of General Medical Sciences (Ed. &
Training) [09-25-1l851-553-A):
Budget Authority .. .......
88.179
34,091
OJtlay s .. ..... ....... .......
29,208
11,216
National Institute of Environmental Health Sciences
(Research) (09-25-1l862-552-A):
Budget Authority ... ......
227,684
87,431
Outlays .............
126,916
48,736
National Institute of Environmental Health Sciences
(Ed.&train.) (09-25-1l662-55~A):
Budget Authorrty ..
10,949
4,204
OJtJays
6,131
2,354
Nauonal Hear1, Lung and Blood Institute (Health
researCh) (09-25-1l872-SS2-A):
Budget Authority ..
1,059,015
410,502
Outlays....
523,821
201,147
National Hea'1. Lung and Blood Institute (Education
& trarning) I09-25-0872-55~AI:
Budget Authollty..
48>41
16,717
Outlays
1,950
749
Natronal Inslitute 01 Dentat Research (Health
research) {C9-25-1l87~552-AI:
Budgel Authorrty. .
135,053
51,860
Outlays
74,483
28,601

8-12

National Insti. of Diabetes, and Digestive and Kidney
Diseases (09-25-0884-552-A).
Budget Authority ........
581,397
223,256
Outlays ........................
187,769
72,103
National Insti. of Diabetes, and Digesuve ar,d Kidney
Diseases (09--2!>-OB84-553-A):
Budget Authority ..
25,604
9,832
Outlays ........................
6,401
2,458
National Institute of Alle'gy & fnfectious Diseases
(Research) (09-25-1l88!>-552-A):
326,092
Budget Authority .. .......
849,199
109,594
Ou tlay s ................ .......
285,402

National Eye Institute (Health researchl (09-2!>0887-552-A):
9t,730
238,861
Budget Authority ... .
34,712
90,395
OUtlays ....................... .
National Eye Inslitute (Education and training) (0925-1l887-5~A)

Budget Authority ..........
7,671
2.946
Ou tlays
765
294
National Ins. of Arthri~is and Musculoskeletal and
S~in Diseas (09-25-0888-552-A):
64,777
Budget Authority .........
168,691
27,340
Outlays.. .....................
71,197
National Ins. of Arthritis and Musculoskeletal and
Skin Diseas (09-2!>-0888-553-A):
Buoget Authority .........
7,386
2,836
OJtlays ........................
1,270
488
National Center for Nursing Research (09-25-<)8895S2-A):
11,735
30,559
Budget Authority"" ..... .
1,901
OUtlays ....................... .
4,950
National Center for Nursing Research (09-25-1l88955~A):

Budget Authority..........
Outlays..

4,640
742

1,782
285

NID and Other Communicative Disorders (09-2!>0890-552-A) :
45,742
Budget Authority ......... .
119,120
18,865
OJtlays ....................... .
49,128
NID and Other Communicative Disorders (09-2!>0890-5~A):

1,316
Budget Authority ......... .
3,428
534
OuTlays ........ .
1,391
National Center for HU'l1an Genome Research (0925-1l891-552-A):
22,602
Budget Authority ........ .
56,860
7,950
OJtlays ..
20,703
National Center for Human Genome Research (O~
25-1l691-55~A):

Budget Authority ..... .
OJtlays ....................... .

3,190
1,008

1,225
367

G-R-H Sequester Amounts-Continued

G-R·H Sequester Amounts-Continued

G·R·H Sequester Amounts-Continued

(In thousands of dollars)

(In thousands of dollars)

(In thousands ot dolJars)

Account Title

Sequester
Base

Sequester
Amount

Alcohol,Drug Abuse, & Mental Health
Administration
Federal subsidy for SI. Elizabeths Hospital (09-3013OO-551-A):
7,202
Budget Authority..........
18,756
Ou~ays .......................
18,756
7,202
Alcohol, drug abuse, and mental health (Health care
services) (09-30-1361-551-A):
Budget Authority .........
1,726,727
663,063
Outlays .......................
579.956
222,703
Alcohol, drug abuse, and mental health (Health
research) (09--30-1361-552-A):
Budget Authority .........
936,305
359,541
Outlays ....... .................
346,957
133,231
Alcohol, dru9 abuse, and mental health (Education
and training) (09-30-1361-553-A):
Budget Authority .........
73,894
28,375
Outlays ........................
3,642
1,399

Office of Assistant Secretary for Health
Public health service management (Health care
services) (09-37-1101-551-A):
Budget Authority..........
58,320
22,395
Outlays ........................
29,483
I I ,321
Public health service management (Health research)
(09-37-1101-552-A):
Budget Authority ........ ..
21,248
8.159
18,445
Outlays ...................... ..
7.083
Medical treatment effectiveness (09-37-1105-552A):
Budget Authority ........ ..
27,965
10,739
Outlays ...................... ..
15,661
6,014

Account Title

Sequester
Base

Sequester
Amount

Family Support Administration
Program administration (09--70-1500--609-A):
Budget Authority .........
89,426
34,340
401(C) AuthorityOff. Coil. ..................
417
160
Outlays ........................
62.906
24.156
Family support payment to States (CSE) (09--70150 1-609--B):
Budget Authority..........
1,166,599
447,974
401(C) Authority..........
362,401
139,162
1,529,000
587,136
Outlays........................
Low income home energy assistance (09--70-1502609--A):
Budget Authority .........
1,503,606
577,385
1,368,281
525,420
Outlays ........................
Refugee and Entrant Assistance (09-70-1503-609--

A):
Budget Authority..... .....
390,564
149,977
253,867
97,485
Outlays .......................
Community services block grant (09-70-1504-506A):
152,474
Budget Authority ....... ..
397,068
401 (C) Authority ........ ..
8,041
3,088
107,338
Outlays ...................... ..
279,525
Interim assistance to States for legalization (09-701508-506-A):
840,000
322,560
401(C) Authority ..........
Outlays ........................
252,825
97,085
Payments to States for Family Support Activities
(09--70-1509-609--A) :
Budget Authority..........
1,000,000
384,000
Outlays ........................
763,000
292,992

Human Development Services
Health Care Financing Administration
Program management (Health care services) (09-38--0511-551-A):
Budget Authority .........
91,830
35,263
Outlays .......................
91,830
35,263
Program management (Health research) (09-380511-552-A):
Budget Authority..........
13,384
5,139
Outlays ........................
13,384
5,139
Federal supplementary medical insurance trust fund
(09--38--8004-571-A):
401(C) Authority..........
27,599
10,598
1,471,689
565,129
Obligation limitation.....
Outlays ........................
1,306,263
501,605
FSMI 2% split (G-R-H) (09--38--8004--571-S):
Obligat. limit.-Spec.
Rules .............. .........
408,000
408,000
Outlays........................
408,000
408,000
Federal hospital insurance trust fund (09--38--8005571-A):
401 (C) Authority ..........
103,825
39,869
Obligation limitation.....
1,040,079
399,390
Outlays ........................
885,502
340,033
FHI 2% split (G-R-H) (09--38--8005-571-S):
Obligat. Iimit.-Spec.
Rules .......................
1,190,000
1,190,000
Outlays........................
1,190,000
1.190,000

Social Security Administration
Supplemental security income program (09--600406-609--A) :
Budget Authority .........
832,072
319,516
Outlays........................
832,072
319,516
Special benefits for disabled coal miners (09--600409-601-A):
Budget Authority ........ ..
2,748
7,156
Outlays ...................... ..
2,748
7,156

Social services block grant (09--80-1634-506-A):
Budget Authority..........
2,800,000
1,075.200
Outlays ........................
2.660,000
1,021,440
Human development services (09--80-1636-506--A):
Budget Authority..........
3,059.713
1,174,930
Outlays ........................
1,778.479
682,936
Payments to State for toster care and adoption
assistance (09--80-1645-506-A):
Budget AuthoritySpec. Rules .............
5,132
5.132
Outlays ........................
3,683
3,683

Policy Management
General Departmental administration (09--90--0120609--A):
Budget Authority ... ......
82,692
31,754
.outlays .......................
57,884
22.227
Policy research (09--90--0122-609-A):
Budget Authority..........
5,214
2,002
Outlays .......................
2.086
801
Office of the Inspector General (09--90-0128-609-A):
Budget Authority .........
52.891
20,310
Outlays ........................
39,670
15,233
Otfice for Civil Rights (09-90-0135-751-A):
Budget Authority ........
18,128
Outlays .................. ......
16.496

6.961
6,334

Office of Consumer Affairs (09--90-0137-506-A):
Budget Authority .. .......
1,919
737
Outlays ............ ....... .....
1.535
589
Total, Department of Health and Human Services:
Budget AuthOrity ........ 25,464,694
9,778,441
Budget AuthoritySpec. Rules .............
39,941
39,941
401(C) Authority ..........
1.342.412
515.487
401 (C) AuthorityOff. Coli. ..........
4,012
1,540

B-13

Account Title

401 (C) AuthoritySpec. Rules...... .......
Obligation limitation.....
Obli9at. lim It.-Spec.
Rules .......................
Outlays ........................

Sequester
Base

Sequester
Amount

60
2,511,768

60
964,519

1,598.000
20,120,357

1,598,000
8.727,487

Health and Human Services Social
Security
Social Security
Federal old-age and survivors insurance trust fund
(16--05--8006-651-A) :
Obligation limitation.....
1,694,999
650.880
Outlays .......................
1,459.886
560,596
Federal disability insurance trust fund (16-05-8007651-A):
Obligation limitation ... ..
540,687
207,624
Outlays ...................... .
471,776
181.162
Total, Health and Human Services Soclaf
Security:
Obligation limitation.....
2,235,686
858,504
Outlays........................
1,931,662
741.758

Department of Housing and Urban
Development
Housing Programs
Housing counseling assistance (25-02--0156-506-

A):
Budget Authority... .......
3,591
1,379
Subsidized housing programs (Housing assistance)
(25-02--0164-604-A):
Budget Authority..........
7,528.368
2,890,893
Outlays ........................
71,957
27,631
Congregate services program (25--02-0178-604-A):
Budget Authority .........
6,074
2,332
Ass!. tor the renewal of e~piring section 8 subsidy
cont. (25-02--0194--604-A):
Budget Authority .........
1.122,844
431.172
Outlays ................. .......
61.532
23,628
Section 8 moderate rehab. single room occupancy
(25-02--0195-604-A):
Budget AuthOrity..........
76,259
29,283
Outlays ........ ........ ........
3,045
1,169
Rental housing assistance fund (25--02-4041-604A):
401 (C) AuthorityOff. Coil. ....... ..........
70,000
26,880
Outlays ....... .................
70.000
26,880
Nonprofit sponsor assistance (25--02-4042-604--A):
Direct Loan
1,114
428
Limitation ..... ............
FHA Mutual Mortgage and Cooperative Housing
Insurance Fund (25-02-4070-371-A):
Obligation limitation.....
229,291
88,048
Direct Loan
Limitation .................
74,258
28,515
Guaranteed Loan
limitation ................. 65,345,176
25,092,548
229.291
88,048
Outlays ................ ........
Nehemiah Housing Opportunity Fund (25-02-4071604-A):
Budget Authority ...
25,220
9,684
FHA general and special risk insurance funds (2502-4072-371-A):
Obligation limitation .....
181,451
69,677
Direct Loan
Limitation.. ....
16,633
6.387
Guaranteed Loan
Limitation ........
11.593.499
4,451,904
181,451
69,677
Outlays.....................

G·R·H Sequester Amounls-Cortlnued
(I~

G.R.H Sequester Amounts-Continued

G·R·H Sequester Amounts-Continued

lin tnDusands of dollars)

(In thousands 01 dollars)

thousands of dOllars'l

Acco~nt T :'e

SeqUester
Base

Seques:er
Amounl

ACCOLJ11 Tide

Sequester
Base

Sequesler
Amount

Housing 'or the elderl~ or handiCapped lund 12:Hl241 1 5-371-A)
Direct Loan
189,126
L ITltatlon
492,516

Sa'ar,es & expenses, Ircl Iransler ollunds (PubliC
assist) iZ5-3:Hl14:Hi04-A)
61,825
Budgel Authority.,
161,003
47,580
Outlays....
123,907

Inlerstale la~a sales (25--D2-5270-37&-A)
401lC) Authority
600

Salaries & expenses, incl :ransler 01 funds (Federal
law aCls.) (25-35...{)143-751-A)
Budget Authority ..
21,566
8,281
Outlays..
16,596
6,373

~~s

230

~

~

ManulaClured home Inspecl,on and monitoring (25-02-5271-37&-A)
2,811
401 ICI Au'ror,ty
7,320
2,496
~tlays
6,500

PJbllC and Indian HOUSing Programs
Payments lor opera lion Of low Inrome hOUSing
prOjects (2:Hl3--D163--604-A)
Budget Au:ronty,,,
1,943,363
746,251
Oullays
893,436
343,079

Government National Mortgage
Association
Guarantees of mortgage· backed seCUrities 125--044238-371 -AI
401 (C) Autnor(yOlf. Call
5,950
2,285
Guaranleed Loan
L,mllallon
85,063,753
32664,481
Outlays ..
5,950
2,285

Community Planning and Development
Communrty development grants (2:Hl6--0162-451A)

Budgel AuthOrity
3,014,473
1,157,558
Guaranleed Loan
L,nltatlon,..
147,722
56,725
Outlays ,.,.,.,.
121,500
46,656
Urban homes leading (25--06--0171-451-A):
Budget AUlrority ..
13,541
5,200
Oullays..
13,541
5,200
Emergency sheller giants progran (25-06--01Bl604-A)'
Budget AuthOrity ..
76,237
zg,275
Oullays
tl,436
4,391
Rental rehabll,latlon grants (25-()6....()1S2-451-A):
Budgel AuthOrity
133,360
51,210
TranSlt'onal and supporllve hOUSing demonstration
programs 12:Hl6.-Q18~04-A):
Budget AuthOrity
132,152
50,746
Rehablillallon loan tund (25-06-4035--4S1-AI:
4011c) AuthontyOff. Coli
13,703
5,262
Direct Loan
Llmltat'on
87,548
33.618
OJllays .
29,685
11,399

Policy Development and Research
Researc'1 and teChnology 125--2B--Ol08--45t-A)
Budget Authority
2t ,284
8,173
Oullays
6,385
2,452

Fair Housing and Equal Opportunity
Fall hOUSlrg actlvilies (25-zg--D144-751-A).
Budtie: AuthOrity
12,931
Outlays..
1,940

4,966
745

Management and Administration
Salaries /I. expenses. 11cl :rarsfel 01 funds
ICOr'muO':Y dev! IZS-3S--D143-451-AI
Budgel Ac.I~O"i)'
178,667
Out'ays
137.501

68,608
52,800

Olke of [he tnspector General (25--35-{)189-451A)

24,912
19,182

Budget Authority" '
Oultays ..

9,566

7,366

Total, Department of Housing and Urban
Development:
5,566,402
14,495,845
Budgel Authority .. ,
3,041
7,920
401 (C) Authority ..
401 (el AUlhorlty34,427
89,653
Off. Coil. ""
157,725
410,742
Obligation limitatlor.
Direct Loan
258,074
limllation ".,.'
672.069
Guaranteed Loan
162,150,150
62,265,658
LimJlation ."
2,005,435
770,085
Outlays ",,,,,,,.,.,,

Department of the Interior

Account Title

Minerals Management Service
leasing and royally management (1~1917-302A):
Budget Authority.,..
184,180
70,725
Outlays ,.
128,926
49,5{)8
Payments to states Irom receipts under Mineral
leasing Acl (1~6-5003-806-A):
401(C) Authority..
531,593
204,132
OuUays "", .. .,.,., ..,,,
531,593
204,132

Office of Surface Mining Reclamation &
Enforcement
Regulation and technology (10-08--1BOl-302-A)
Budget AuthOrity ''''''''
107,322
41,212
Outlays .., ...... ".".
63,283
24,301
Abandoned mine redamatlon lund (10--08--5015302-A):
200,972
Budget AuthOrity """,.
77,173
Outlays ,,,,,,,,,,,,,,,.,.,.
69,372
26,639

Bureau of Reclamation

Managemenl of lands and resources (10...{)4-110~
302-A).
Budgel Authority .. ".,.
456,454
175,278
Outlays
397,115
152,492
Constructron and access (10--04-1110-302-A):
Budget Authority """'"
11,201
4,301
2~OO

lP~

Payments in lieu of [axes (1 O--D4-1114-80&-A):
Budgel Au:hOrlty,., .. ,....
109,410
42,013
OUllays..
109,410
42,013
Oregon and California grant lands (10--04-1116-302-A)
Budget Authoflty "
66,932
25,702
Out ays
49,530
19,0203
SpeCial acqUisition of lands and minerals (10--041117 -302-A)
401 (C) AuthOrity ,. .
1,300
4gg
Outlays,
1.300
499
Fireflghtlng (1 0--04-111 ~302-A)'
Budget AUlhonty"
277,716
106,643
Outlays"
194,401
'14,650
Selvice charges, deposits, and lorfeitures (10--045017 -302-A):
Budget Au:horlty"
6,272
2,408
Outlays
5,519
2,119
Land acqulSJlIOn 110-04-5033-302-A)
Budgel AuthOrity '" ...
16,031
6,156
Outlays
2.405
924
Operallon and nalnlenance 01 quarters (10--045048-302-A)
401(C) Authollry,
250
96
~tlays.
210
81
Rarge mprovements (~0--04-5132-30Z-A):
Budgel AUlhorlry " "
10,188
3,912
Outays..
6,418
2,465
Miscellaneous permanent appropriations (10--049921 -302-A)
401 IC) AumOrli)'"
4,500
1 728
Ou:lays .... "''''"",.
4,455
1>11
Miscellaneous permaneot appropriations 110-049921 -806--A)
,
401:C) AuthOrity,
142,394
54,679
OJ tlays
140,970
54,132

8-14

Sequester
Amount

Miscellaneous trust lunds (1 ~4-9971-302-A)
Budget Authority .,,,,,,,
100
38
401 (e) Authority.
600
23()
Outlays .. .,., ....... .,.
357
137

Bureau of Land Management

~~s,

Sequester
Base

loan program (1Q-l0-0667-301-A):
Budget Authority."".".,
35,063
Direct Loan
Limitation .".,.,.,........
31,922
Outlays """.
21,564

13,464
12,258
8,281

Const'Uctlon program (10-10--D684-301-A):
Budget Authority,
681.370
261,646
401 (C) Authority36,096
Off, CoiL ..... "",, .... .,.
94,000
666,407
255,900
Outlays ""., .... .,.,. .. "".,.
Lower ColoradO River basin development fund (II}10-4 079-30 I-A):
401(C) AUlhority37,179
96,821
Off. Call. "".,.,.""""
37,179
Outlays ",.".,,,,,,.,.,,,,,
96,821
Upper Colorado River basin fund (10-10-4081~301~
A)
401 [C) AUlhorityt2,136
Off, Coil.
31,604
12,136
Outlays
31,604
Working capital fund (10-1Q-4524-301-A):
Budget Authority., .. ,
8,733
Outlays ." ..... "".. .
6,987
Emergency fund (10-10-5043-301-A):
Budget Authority .. .,.".,.
1,027
Outlays.,,. ... .,.,,,,., ... ,,,,
621
General Investigations (10-10-5060-301-A):
BUdget AuthOrity,.,,,,,,,
11,889
Outlays
7,657

3,353
2,683
394

238
4,565
2,940

Operation and maintenance (10-10-5064-301-A):
Budget Authority"
218,949
84,076
401 [C) AuthorityOff, Coil.
9,287
3,566
Outlays .,,""
179,410
SS,893
General administrative e~penses (10-1o-506hlOl~

A):
Budgel AUlhority "
Outlays ",,,,,, ..,.,.,., ..,,,

49,533
44,579

19,021
17,118

Colorado River Dam Fund, Boulder Canyon Project
(10-1 0-5656-30 I-A) :
-1,253
Budget Authority ".,.,,,
-3,262
20,48f
401 (C) AUL~ority ..,.,.,."
53,335
11,018
Outlays ",.,,..,, .. ,,,,,,.,,,,
28,692

G·R·H Sequester Amounts-Continued

G·R-H Sequester Amounts-Continued

G·R-H Sequester Amounts-Continued

(In thousands of dollars)

(In thousands of dollars)

(In thousands of dollars)

Account Title

Sequester
Base

Sequester
Amount

Reclamation trust funds (10-1 0-8070-301-A):
401 (C) Authority..........
97,195
37,323
Outlays ....... .................
77 ,907
29,916
Miscellaneous permanent appropriations (10-109922-806-A):
401(C) Authority ..........
280
108
(Mays ........................
224
86

Geological Survey
Surveys, investigations and research (10-12-0804306-A):
201,666
525,171
Budget Authority ......... .
96
401 (C) Authority ......... .
250
401(C) Authority78,427
30,116
Off. Coli .................. .
577,359
221,706
Outlays ........................
Operation and maintenance of quarters (10-12S055-306-A):
401 (C) Authority .... ......
55
Outlays ........................
45

21
17

Bureau of Mines
Mines and minerals (10-14-0959-306-A):
Budget Authority .........
186,651
Outlays ........................
121,696
Helium fund (10-14-4053-306--A):
401(C) Authority4,564
Off. CoiL ................. .
Outlays ........................
4,564

71,674
46,731

1,753
1,753

Fish and Wildlife Service
Resource management (10-18-1611-303-A):
Budget Authority..........
417,982
160,505
401 (C) AuthorityOff. Coli. ..................
4,396
1,688
Outlays........................
338,387
129,941

Sequester
Base

Account Title

Sequester
Amount

Miscellaneous permanent appropriations (10-189923-303-A):
401(C) Authority..........
134,500
51,648
40,350
15,494
Outlays .......................

Operation of the national park system (10-24-1036303-A):
803,983
Budget Authority ........ ..
308,729
401(C) AuthorityOlf. Coli. ..................
2,800
1,075
Outlays ........................
605,787
232,622

Indian loan guaranty and insurance lund (10-76441 0-452-A):
1,888
4,916
Budget Authority ..........
Guaranteed Loan
17,280
Limitation ................ .
45,000
1,382
Outlays ...................... ..
3,599

John F. Kennedy Center for the Performing Arts (1024-1038-303-A):
Budget Authority..........
9,521
3,656
Outlays ........................
4,391
1,686

Operations and maintenance of quarters (10-765051 -452-A):
401 (C) Authority ..........
6,330
2,431
Outlays ........................
654
251

Construction (10-24-1 039-303-A):
Budget Authority .........
317,641
401 (C) Authority11,000
Off. CoiL ................ ..
58,647
Outlays ...................... ..

Cooperative lund (Papago) (10-76-8366-452-A):
401 (C) Authority ..........
868
333

121,974

Navajo Rehabilitation Trust Fund (10-76-8368-4524,224
22,520

National recreation and preservation (10-24-1042303-A):
Budget Authority..........
16,777
6,442
Outlays ........................
12,558
4,822
Illinois & Michigan Canal National Heritage-Corridor
Commissio (10-24-1043-303-A):
100
Budget Authority..........
261
75
Outlays ........................
196
Land acquisition (10-24-5035-303-A):
Budget Authority..........
125,746
401 (C) Authority ..........
30,000
Outlays ........................
44,010

48,286
11,520
16,900

Operations and maintenance of quarters (10-245049-303-A):
401 (C) Authority ..........
8,795
3,377
2,250
Outlays ........................
5,859
Historic preservation fund (10-24-5140-303-A):
Budget Authority .........
34,265
13,158
Outlays ........... .............
11,289
4,335

Land acquisition (1 0-18-5020-303-A):
Budget Authority..........
96,818
Outlays ........................
43,568

37,178
16,730

Miscellaneous permanent appropriations (10-249924-303-A):
401 (C) Authority ..........
980
376
Outlays ........................
116
45

North America Wetlands Conservation Fund (10-185241-303-A):
401(C) Authority ..........
10,000
3,840
Outlays ........................
7,000
2,688
Sport fish restoration (10-18-8151-303-A):
401(C) Authority..........
212,400
63,720
Outlays........................

81,562
24,468

African elephant conservation fund (10-18-8154303-A):
401 (C) Authority..........
1,300
499
Outlays ........................
260
100
Contributed funds (10-18-8216-303-A):
401 (C) Authority ..........
5,600
Outlays ........................
1,776

2,150
682

Sequester
Amount

National Park Service

30,849
6,170

Migratory bird conservation account (10-18-5137303-A):
401(C) Authority..........
31,600
12,134
Outlays .......................
21,704
8,334

Sequester
Base

Revolving fund for loans (10-76--4409-452-A):
401 (C) AuthorityOff. Coli. .................
10,890
4,182
Direct Loan
9,000
3,456
Limitation .................
11,090
4,259
Outlays ........................

Construction (10-18-1612-303-A):
Budget Authority..........
80,336
Outlays ........................
16,067

Operations and maintenance of quarters (10-18SOSO-303-A):
401 (C) Authority ..........
1,809
695
Outlays ........................
648
249
National wildlife refuge fund (10-18-5091-806--A):
Budget Authority..........
9,287
3,566
401 (C) Authority .... ......
6,294
2.417
Outlays ................. .......
11,455
4,399

Account Title

Bureau of Indian Affairs
Operation of Indian programs (Conservation and land
management) (10-76-21 00-302-A):
55,808
Budget Authority ..........
145,333
39,062
101,723
Outlays........................
Operation of Indian programs (Area and regional
development) (10-76-2100-4S2-A):
Budget Authority .. .......
610,497
234,431
401 (C) AuthorityOff. Coil. ..................
64,000
24,576
Out1ays .......................
436,085
167,457
Operation of Indian programs (Elementary,
secondary, & vo. ed.) (10-76-2100-501-A):
Budget Authority .........
311,502
119,617
Outlays........................
218,051
83,732
White Earth Settlement Fund (10-76-2204-4S2-A):
401 (C) Authority .... ......
6,000
2,304
~~

U~

Construction (10-76-2301-452-A):
Budget Authority..........
183,547
Outlays .......................
45,844

OU~s........................

70,482
17,604

Payment to the Navaho Rehabilitation Trust Fund
(1 0-76-2368-4S2-A):
Budget Authority..........
834
320
Outlays ..................
834
320

B-15

A):
401 (C) Authority ..........
Outlays.......................

872
872

335
335

Miscellaneous permanent appropriations (Area and
regional dev.) (10-76--9925-452-A):
25,398
401 (C) Authority ..........
66,141
2,140
Outlays ........................
5,572
Miscellaneous permanent appropriations (10-769925-808-A):
401 (C) Authority ..........
2,000
768
Outlays ........................
2,000
768

Office of Territorial Affairs
Administration of territories (10-82-0412-808-A):
Budget Authority .........
50,875
19,536
Outlays ........................
25,602
9,831
Trust Territory of the Pacific Islands (10-82-0414808-A):
13,175
34,310
Budget Authority ........ .
11,725
30,535
Outlays ...................... ..
Compact of free association (1 0-82-Q415-808-A):
Budget Authority..........
12,345
4,740
Outlays ........................
11,382
4,371

Office of the Secretary
Salaries and Expenses (10-84-0102-306-A):
Budget Authority .........
52,690
20,233
47,421
18,210
Outlays ........................
Construction management (10-84-0103-306-A):
Budget Authority .........
1,884
723
Outlays .......................
1,697
652
Oil spill emergency fund (10-84-0119-306-A):
Budget Authority .........
7,585
2,913
Outlays ........................
7,585
2,913

Office of the Solicitor
Office 01 the Solicitor (10-86-0107-306-A):
Budget Authority..........
26,510
Outlays ........................
23,858

10,180
9,161

Office of Inspector General
Office of Inspector General (10-86-Ql04-306-A):
Budget Authority..........
21,444
8,234
Outlays........................
19,300
7,411

National Indian Gaming Commission
National Indian Gaming Commission (10-89-011 S806--A):
Budget Authority........
784
301
Outlays ....... ........ .........
706
271

G-R-H Sequester Amounts-Continued

G-R·H Sequester Amounts-Continued

G·R-H Sequester Amounts-Continued

lin tMusands 01 dollars)

(In rhousands of dollars)

(In thousands of dollars)

Sequester
Base

Tola!, Departm.nt 01 the Inrerlor:
Budget Author/tv
6.539.575
401(C) Aut'1ofl~
1.357.2<'
401(C) Authoflty011 Coil
407.789
Direct loan
Llmlta!lon
40.922
Guaranteed Loan
LimiTation
45.000
Ou:lays
5.862,399

Secue Siel
A r<)Ourll

2.511.191
521,180
156.591
15.714
17 .280
2.25t .162

Department of Justice

General Administration
BJdget Authorily
100.970
38,772
Outlays
90.469
34,740
Of lice of Ihe Inspector General (I t-03-032&-751A)

United

States

21,510
20.31 t

8.260
7,799

Parole Commission

Salafles and expenses (11-<J4-1061-751-A):
Budget Authority...
10,998
4,223
Outlays..
9,458
3,632

Legal Activities
Salar es and expenses. Foreign ClaIms SenlerT'Mt
CommiSSion (11-05-0100-153--A)
Budget Authority
461
177
OJtlay s ..
334
128
Sala,,€s and exp~nses. General fegal actiVItieS (11-

OH I 2&-752-A)
Budget Au!horrty
308,803
118.580
Outlays.
268,658
103.165
Fees and expenses of witnesses 111-05-<)311-752A)

SequeSter
Base

Sequester
Amounr

Asse:s 'olle'lUre fund p l-oS-5042-7S2-A):
BJdget Authority .. ,.......
103,101
39,591
401 (C) AUlhoflty...
272.000
104,448
Outlays.
150,040
57,615
United States truslees system func (1 1"{)S-5073752-A)
Budget AuthOfity
62,847
24,133
Oui\ays.
56,562
21,720

Interagency Law Enforcement
Organized cnme drug errforcement (1 1"{)7-<J323751-AJ.
Budget AUlhority
223,948
85,996
Outlays.
172,440
66,217

Sa'arIes anc expenses (11-<J3--0129--751-A):

Budget Authority
OJllays

Accounr Tlrle

Federal Bureau of Investigation
Salaries and eKpenses (11-10-0200-7S1-A):
Budget Authority ..
1.763,208
677,072
401 (C) Authorll)'ON Call. ,.......... .
20,352
7,815
Outlays ............ ..
1,413,112
542,635

Drug Enforcem ent Administration
Salafles and expenses (11-12-1 100-7S1-A)'
Budget Autrorty...
574,039
220,431
401 (C) Authority011. Coli .
1.500
576
Outlays
432.029
165,899

Immigraticn and Naturalization Service
Salalies and expenSeS (11-1S-1Z17-751-A):
Budget Authority.......
BB1,997
33B,6B7
~01 (C) Autnomy011. Coil ......
3,817
1,466
Outlays ..
709,415
272,415
Immigration emergency fund (1 t-1S-1 21 &-751-A)
Budgel Authonry ..
36,470
14,004

Account Tille

Sequester

Base

Sequeste,
Amount

PubliC safety officers' benellts (11-21-o403-754_A)
Budget AuthorIty.
2S,075
10.013
Outlays..
26,075
10.013
Crime Victims Fund (11-21 -5041-754-A):
401 (C) Authority.
125,000
48,000
Outlays ....
62,500
24,001)
Total, Department of Justice:
Budget Aurhonry "........
8,504,247
401(C) Authority"
1,216,468
401 IC) AuthorityOf I. Calf...... '''" .
58,473
Obligation limitation....
2,980
Outlays ..... ,'" .. """...
6,566,422

3,265,530
467,124
22,453
1,144
2,521,507

Department of Labor
Employment and Training Administration
Program administration (12-{)5-{)172-S04-A):
Budget Authority, ..
67,783
26,029
OUtlays.." .... " .. " .. ""
50,295
19,313
Training and employment services (12-<J5--0174S04-A):
BUdget Auuwity '"
4,094,373
1,572.239
Outlays.
206,001
79,104
Community service employment for older American~
(12-<J5-{)175-504-A):
Budget Authority..........
382,427
146,852
Outlays ..... " ... "...........
68,637
26,433
State unemployment insurance and employment
services 112-{)5-{)179-504-A):
Budget Authority .""",,
22,924
8,803
Outlays.".""".
5,585
2,145
Federal unemployment benefits and allowar.ces (1205--032&-504-A) :
BUdget Authority..
71.000
27,264
Outlays,,, ...... ,,...
21,300
8,179
Federal unemployment benefits and allowances (12-

O~326--S03--A )
Budge! AuthOrity
70,628
27,121
Immigration legalization (11-15-5086-751-A):
Budget Authority .. "."..
198,500
76,224
OJtlays..
49,510
19,O~ 2
40 I (C) Authonty.
33.093
12.708
Oullays
...... ...........
198,500
76,224
SafariBs and expenses, A~tilrust D,VIs,on (11-{)SOutlays..
33.Q93
12,708
03 I 9-752-A)
UMmployment trust fund (Training and employmenl)
Immigration user fee (11-1S-5087-751-A):
(1 2~5...9042-504--A)'
Budget Authority .. ,
35,910
13,789
401(C] Authority...
125,142
48,C55
Ob1igation limitation.""
1,134,615
435,692
40IIC) AuthorityOutlays.
125, 142
48,C55
187,260
Outlays .... " .. " ...... " .. "..
487,655
20.000
7.680
Off Coil.
Immigration examinations lee (11-1 :'-5068-751-A)
OJtfays..
49,4<5
18,987
Unemployment trust fund (Unemployment
401 lei Authon\)' ...
157,233
60,377
rompensation) (12-o:,..a042-603-A):
Salarres and expenses, U.1lted States Anorneys (1~OJtlays .
157,233
60,377
05-0322-752-A)
43,315
4011C) Authority .... "...
t 12,800
Obligation limitation .. "
1,697,652
728,693
Budget Authority...
543.486
208,699
Federal Prison System
Outlays..
2.010.452
772,014
Outlays
479,268
183,655
Buildings and laci ihes II 1-20--tOO3-753-A):
Sat aries and expenses, United States Marshals
labor-Management Services
Service (1 1-<J5-0324-752-A)
BUdget Aurnorlty
1,455,909
559,059
OJtlays..
145,591
55,907
Budge! Au!honty
256.848
98,630
Salaries and eKpenses 112-1 0--0 104--50&-A):
401 (C) Au:horrtyNatlonallnstllule of Corrections (11-20-1004-754Budget Authority .... , ...
77,405
29,724
A)
Off Coil .
S8
22
Outlays .... ,.. " ..... " ...
66,297
25,456
Outlays
231,221
88,789
Budget Authomy ...
10,419
4.001
Oullays.
Independenl rounsel (t 1-05-0327-752-AI
4,168
1,601
Pension Benefit Guaranty Corporation
40t(C) AuthOrity..
4,000
1,536
Salaries and expenSes (11-20--1060--753-A).
PenSion Benefit Guaranty Corporation fund (12-12Outlays
4.000
1.536
Budget Aun·onty..
1,181.055
453,525
4204-601-A):
401(C) AuthorltyCiYII Llbet:les PJblrc Ed.·catlon Fund (11-<J5-{)32917,001
Obligation limitatron ... "
44,274
80&-AJ
Off. CD II.
12746
4.894
17,00 1
Outlays ....... " ......... ..
44,274
40 I IC) AuthOrity
500.000
Outlays..
1,108.765
425,766
192 000
Outlays.
500,000
192.000
Federal Prlsor, Industnes, Incorporated (11-20Employment Standards Administration
4S00-753-A):
Salaries and expenses Community Pelatlons
ObligatIon 111':lIatlon.
SerYlce 111-o5--0S00-7S2-A)
Salaries and expenses (12-15..{)1 05-505-A):
2.980
1,144
Outlays
Budget AuthorIty ... ,,,,,,,
226,635
87,028
Budget AUlhofity
30.20~
• 1.597
2,980
1,144
41)1 (C) AuthorityOu:lays
25,571
9.858
4W
O~. Coil. ............. ,
1,275
Dflice oj Justice Programs
SUDOD'I 01 Uri ted States prlsone's (11-0:'-102076,308
Outlays"" ... " ... , .. ,.....
198,720
752-A,I
JLStlce assistance (' 1-21-{)401-754_A)
Black I'Jng disability Uust lund (12-j~I44-601-AI
Budget Aur'ol' Y
165,133
63.4"
Budge! Authorrty '.
640.231
245,849
OJ:'ays
99,080
38.047
Budget Authority"
53,591
20,57~
Oliliays
140.851
54,067
wtlays ... " ..... ,",,,.
53,591
20,57

B-16

G·R·H Sequester Amounts-Continued

G·R·H Sequester Amounts-Continued

G·R·H Sequester Amounts-Continued

(In thousands of dollars)

(In thousands of dollars)

(In thousands of doliars)

Account Title

Sequester
Base

Sequester
Amount

Special workers' compensation expenses (12-159971-$1-A):
406
1,057
Obliga~on limitation ... ,.
406
1,057
Outlays ........................

Occupational Safety and Health
Administration
Salaries and expenses (12-18-0400-554-A):
Budget Authority .........
279,243
107,229
Outlays ....... .................
243,333
93,440

Mine Safety and Health Administration
Salaries and expenses (12-19-1200-554-A):
Budget Authority..........
176,287
67,694
Outlays........................
159,434
61,223

Accoun t Title

Contributions for international peacekeeping activities
(14-10-1124-153-A):
Budget Authority .........
84.484
32,442
Outlays ........................
84,484
32,442
International conferences and contingencies (14-101125-153-A):
6,516
2,502
Budget Authority .........
Outlays .......................
4,431
1,702
Contributions to intemational organizations (14-101126-153-A):
Budget Authority .. .......
640,780
246,060
401(C) AuthorityOff. Coli. ........... .......
40
15
Outlays ........................
608,781
233,772

International Commissions

Departmental Management
Inspector General salaries and expenses (12-250106-505-A):
Budget Authority .........
43,354
16,648
Outlays........................
32,099
12,326
Salaries and expenses (12-25-0165-505-A):
Budget Authority .........
122,614
47,084
401(C) AuthorityOff. Coil. ..................
425
163
Outlays ........................
103,298
39,666
2,310,729
43,315
1,075
1,181,797
1,580,504

Department of State

Administration of Foreign Affairs
Salaries and expenses (14~5-0113-153-A):
Budget Authority..........
1,872,631
719,090
Outlays ........................
1,479,379
568,082
Protection of foreign missions and officials (1 ~50520-153-A):
Budget Authority..........
9,482
3,641
Outlays ........................
7,681
2,950
Emergencies in the diplomatic and consular service
(1~5~522-153-A):

Salaries and expenses, IBWC (14-15-1069-301-A):
Budget Authority .........
10,950
4,205
Outlays ........................
9,855
3,784
Construction, IBWC (14-15-1078-301-A):
11,941
4,585
Budget Authority ..........
Outlays ........................
5,970
2,292
American sections, international commissions (1415-1082-301-A):
1,778
Budget Authority..........
4,629
Outlays ................. .......
3,657
1,404
International fisheries commissions (14-15-1087302-A):
Budget Authority .........
12,657
4,860
Outlays ........................
12,657
4,860

Other
United States emergency refugee and migration
assistance fund (14-25-0040-151-A):
Budget Authority .........
77,900
29,914
Outlays ........................
38,950
14,957
Anti-terrorism assistance (14-25-0114-152-A):
Budget Authority .........
10,393
3,991
Outlays ........................
8,314
3,193
Soviet-East European research and training (14-250118-153-A):
1,841
4,793
Budget Authority ........ ..
1,841
4,793
Outlays ........................
Payment to the Asia Foundation (14-2~525-154A):
14,484
5,562
Budget Authority .. "......
Outlays ........................
12,967
4,979
International narcotics coptrol (14-25-1022-151-A):
Budget Authority .........
117,832
45,247
Outlays ........................
35,350
13,574
Migration and refugee assistance (14-25-1143-151-

Budge! Authority .........
4,830
1,855
Outlays ....... .................
3,429
1,317
Payment to the American Institute in Taiwan (14~50523-153-A):
Budget Authority..........
11,610
4,458
Outlays ........................
8,591
3,299
Office of the Inspector General (1~5-0529-153-

A):
Budget Authority ..........
Outlays........................

Sequester
Amount

International Organizations and
Conferences

Bureau of Labor Statistics
Salaries and expenses (12-2<H>200-505-A):
Budget Authority..........
201,386
77,332
401(C) AuthorityOff. Coli. ..................
1,100
422
Outlays........................
165,169
63,425

Tolal, Department of Labor:
Budget Authority .........
6,017,522
401 (C) Authority.... ......
112,800
401(C) AuthorityOff.Coll. ................. .
2,800
Obligation limitation .... .
3,077,598
Outlays ........................
4,115,897

Sequester
Base

21,625
21,193

8,304
8,138

Acquisi~on and maintenance of buildings abroad
(1 ~5-0535-153-A):
Budget Authority ..........
305,791
117.424
Outlays ........ ................
56,266
21,606

Representation allowances (14~5-0545-153-A):
Budget Authority..........
4,793
1,841
Outlays........................
4,122
1,583

A):
171,444
446,469
Budget Authority ....... ..
128,583
334,852
Outlays ....................... .
U.S. bilateral science and technology agreements
(14-25-1151-153-A):
Budget Authority .........
4,138
1,589
Outlays ........................
4,138
1,589
Fisherman's protective fund (14-25-5116-376-A):
Budget Authority .........
1,042
400
Outlays ........................
1,042
400
Fisherman's guaranty fund (14-25-5121-376-A):
Budget Authority ..........
938
360
Outlays ......... ...............
938
360
International Center, Washington, D.C. (14-255151-153-A):
401 (C) Authority ..........
1,284
493
Outlays ........................
1,284
493

B-17

Account Title

Sequester
Base

Total, Department of State:
Budget Authority..........
3,680,708
401 (C) Authority ..........
1,284
401 (C) AuthorityOff. Coli. ..................
40
Outlays.......................
2,753,124

Sequester
Amount

1,413,393
493
15
1,057,200

Department of Transportation

Federal Highway Administration
Motor carrier safety (21~5-0552-401-A):
Budget Authority ..........
34,861
Outlays........................
28,192

13,387
10,826
Railroad-highway crossings demonstration projects
(21~5~557-401-A):

Budget Authority..........
5,156
1,980
Outlays ........ ........ ........
1,031
396
Trust fund share of other highway programs (21~58009-401-A):
Budget Authority .........
10,313
3,960
Outlays ........................
2,062
792
Baltimore-Washington Parkway (21~5-8014-401-

A):
Budget Authority .........
12,466
4,787
Outlays .......................
2,493
957
Highway safety research and development (21-058017-401-A):
Budget Authority ..........
6,317
2,426
Outlays ................. .......
1,263
485
Highway·related safety grants (21-05-8019-401-A):
401 (C) Authority ..........
10,000
3,840
9,771
3,752
Obligation limitation .....
Outlays ........................
1,954
750
Motor carrier safety grants (21-{)5-8048-401-A):
401(C) Authority..........
62,540
24,015
Obligation limitation.....
62,540
24,015
Outlays ........................
27,209
10,448
University transportation centers (21~5-8065-401A):
Budget Authority..........
5,194
1,994
Outlays ........................
1,039
399
Federal-aid highways (21~5-8083-401-A):
Budget Authority .........
1,042,000
400,128
5,414,837
401(C) Authority .......... 14,101,139
Obligation limitation ..... 12,722,820
4,885,563
Outlays ........................
2,372,828
911,166
Right-of-way revolving fund (trust revolving fund)
(21-{)5-8402-401-A):
Direct Loan
Limitation .................
44,153
16,955
Outlays........................
44,153
16,955
Miscellaneous appropriations (21-05-9911-401-A):
Budget Authority ........
152,226
58,455
11,691
Outlays ........................
30,445
Miscellaneous trust funds-Highway (21-{)5-9972401-A):
25,276
65,824
Budget Authority ....... ..
5,055
13,165
Outlays ...................... ..

National Highway Traffic Safety
Administration
Operations and research (21-1<H>650-401-A):
Budget Authority..........
76,600
29,414
Outlays........................
50,127
19,249
Trust fund share of operations and research (21-108016-401-A):
Budget Authority..........
33,168
12,737
Outlays .....................
21,706
8,335
State and community highway safety grants (21-108020-401-A):
401 (C) Authority ..........
126,000
48,384
136,108
52,265
Obligation limitation.....

G·R·H Sequester Amounts-Continued

G·R·H Sequester Amounts-Continued

G··R·H Sequester Amounts-Continued

(In thousands of dollars)

(In thousands of dollars)

(In thousands of dollars)

Account Title

Outlays ..

Sequester
Base

Sequester
Amount

55,804

21,429

Federal Railroad Administration
Northeast corndor Improvement program (21-160123-401-A)
Budget Authority.
25,469
9,780
Outlays"
5,094
1,956
Office of the Administrator (21-16-07~401-A):
Budget Authoflty .. ,'
22,550
8,659
Outlays..
17,423
6,690
Raltroad safety (21-16-0702-401-A)
12,672
Budget Authority",
33,000
10,138
Outlays
26,400
Grants to National Railroad Passenger Corporation
(21-16-0704-401-A) :
Budget AuthOrity ,
630,082
241,951
Outlays ..
582,185
223,559
Setttements of railroad

IItiga~on

(21-16-0708-401-

A)

Budget Authority,..
235
90
Outlays .. ,.,,'
235
90
Amtrak Corridor Improvement Loans (21-16-<l720401-A):
Budget Authority
3,647
1,400
Outtays "".,,"" " .. ".
1,824
700
Railroad safety research and development (21-160745-401-A):
Budget Authority
9,966
3,827
OJtlays '''''''''" .. ""
5,980
2,296
Commuter rail service (21-16-0747-401-A):
Budget Authority"
5,127
1,969
OJtlays,
564
217
Regional rail reorganization program (21-16-4 t 00401-A)
Budget Authority"
23
9
OJtlays,.,."""".
23
9

Urban Mass Transportation
Administration
Urban mass transportation fund, administrative
expenses (21-20-1120-401-A):
Budget Authority.,
33,326
12,798
Oudays
29,995
11,518
Research, training and human resources (21-201121-401-A):
Budget Authority
10,369
3,989
OJtlays ,.
2,076
798
Interstate transfer grants (21-20-1127-401-AI:
Budget Authority ,.
166,220
63,828
OJtlays..
3,324
1,276
WaShington metro (21-20-1128-40 I-AI:
Budget Authority"
88,304
33,909
OJtlays,
1,766
678
Formula grants (21-20-1129-401-A):
Budget Authority"
1,693,364
650,252
OJtlays".
547,310
210,167
Discretionary grants (21-20--8191-401-A)
401 (CI Authority"
1,400,000
537,600
Obtlgatlon limitation"
1,184,316
454,777
OJtlays """"""""""..
59,168
22,721

Federal Aviation Administration
Operations (21-25-1301-402-AI:
Budget Authority...
3,164,515
1,215,174
401 (C) AuthontyOff Coil. ,
14,484
5,562
Outlays ".
2,698,328
1,036,158
Alrcran ourchase loan guarantee program (21-2!:>1399-402-A)
Budget Authority.
150
58
Outlays.
150
58

Account Title

Sequester
Base

Sequester
Amount

Trust fund share of FAA Operations (21-25--8104402-A):
322,976
841,083
Budget Authority" ...... "
322,976
841,083
Outlays ""." .. " .. "",,." ..
Grants·ln·ald for airports (Airport and airway trust
fund) (21-25--81 OH02-A):
691,200
401 (C) Authority ..........
1,800,000
570,240
1,485,000
Obligation limitation.. .
91,238
Outlays ........................
237,600
Fadlltles and equipment (Airpon and airway trust
fund) (21-25--8107--402-A):
688,856
Budget Authority ....
1,793,900
401 (C) Authority19,146
49,860
Off. Coll. ..
142,452
370,968
Outlays ....
Research, engineering & development (Airport &
airway trust fn (21-25--8108-402-A):
68,196
Bud get Authority.
177,593
401(C) Authority134
Off, Coil. ................. .
350
121,824
46,780
OU~ays ....................... .

820,224
2,196
699,196

Acquisition, construction, and improvements (21-300240-403-A) :
Budget Authority ....... ..
463,000
177,792
Outlays ...... ,.............. ..
50,800
19,507
Retired pay (Coast Guard) (21-30-0241-403-A):
Budget Authority"
39,325
15,101
Oudays
39,325
15,101
Reserve training (21-30--{)242--403-A):
Budget Authority...
74,580
Outlays, ....... " .. "......
66,682

28,639
25,606
Research, development, test, and evaluation (2130-0243-403-A):
Budget Authority
21,350
8,198
Outlays.
7,230
2,776
Alteration of bridges (21-30--{)244-403-AI:
Budget Authority .. ,......
2,421
930
Outlays. .. ...................
557
214
Offshore oil pollution compensation lund (21-305167-304-AI:
0t>llga110n limitation,.
60,000
23,040
Pollution fund (21-30-5168-304-A):
401 (C) Authority
5,700
2,189
Outlays
1,425
547
Deepwater port liaMty fund (21-30-5170--304-A):
Obligation limitation."..
51,940
19,945
Boat safety (21-30-8149--403-A):
Budget Authority
62,332
23,935
OJtlays,.".............
40}04
15,630

Maritime Administration
Ready reserve force (21-35-171 0-<l54-AI:
Budget Authority .........
92,738
23,277
Outlays.,
71,408
17,923
Operations and training (21-35-1750-403-A):
Budget AuthOrity.......
70,405
27,036
OJtlays.
59,353
22,792
Federal ship financing fund (21-35-4301-403-A):
401(CI AuthofltyOff Coil. .
7,300
2,803
Obllga:lon limitation,.
4,040
1,551
Outlays..
7,300
2,803

B-18

Sequester
Base

Sequester
Amount

Saint Lawrence Seaway Development
Corporation
Saint Lawrence Seaway Development Corporation
(2 I --40--4089--403-A):
401 (CI AuthorityOff. CoiL ............ " .. ..
1,400
538
Outlays .................. .
1,400
538
Operations and maintenance (21--40-8oo3-403-A):
Budget Authority.. ........
11,906
4,572
Outlays ...................
11,906
4,572

Office of the Inspector General
Salaries and expenses (21--45-013Q--407-AI:
Budget Authority..........
33,193
12,741i
Outlays ........................
28,679
11,013

Research and Special Programs
Administration
Research and special programs (21-5CHJ104-407-

A):
Budget Authority ........ ..
Outlays ...................... ..

Coast Guard
Operating expenses (21-30-0201-403-A):
Budget Authority..........
2,136,000
401(C) AuthorityOff. Coil. ..................
5,718
Outlays.......................
1,820,823

Account Title

17,943
11,842
Pipeline salety (21-50-5172--407-A):
Budget Authority..........
10,604
Outlays ........................
8,484

6,890
4,547
4,072

3,258

Office of the Secretary
Salaries and expenses (21-55-01 02-407-A):
Budget Authority..........
57,812
22,200
Oudays ........................
52,031
19,980
Transponation planning, research, and developmenl
(21-55--{)142--407-A):
Budget Authority ........ .
7,050
2,707
1,075
2,799
Outlays ........................
Payments to air carriers, DOT (21-55-<l150-402-AI:
Budget Authority .........
31,930
12,261
Ou tlays ................ .......
25,544
9,809
Comml ssion on aviation security and terrorism (21·
55-185Q--407-A):
Budget Authority..........
1,043
401
Working capital fund (21-55-4520-407-A):
Budget Authority .........
4,628
Outlays ........................
4,628
Tolal, Department of Transportation:
Budget Authority ........ , 13,281,330
401(C) AuthOrity .......... 17,505,379
401(C) AuthorityOff. COil. ..................
79,112
Obligation limitation ..... 15,716,535
Direct Loan
Limitation ..... ............
44,153
Outlays .................. ,,"
10,519,713

I,m
I,m
5,087,697
6,722,065
30,379
6,035,148
16,955
4,030,072

Department of the Treasury
Salaries and expenses (15--{)5-0101-803-A):
Budget Authority """ .. ,
60,830
23,359
401(C) AuthorityOff. Coil. ............
306
118
Outlays ..................
53,299
2O,4li7
Office of the Inspector General (15-05-0106-803AI:
6,105
Budget Authority.........
15,899
5,275
Outlays .................... "..
13,737
International affairs (1S--{)5-0171-803-A):
Budget Authority ...... ".
26,205
401(C) AuthorityOff. CoiL ................ ..
5,632
Outlays .............. ..
26,461

10,003

2,163
10,929

G·R·H Sequester Amounts-Continued

G·R·H Sequester Amounts-Continued

G·R·H Sequester Amounts-Continued

(In thousands of dollars)

(In thousands of dollars)

(In thousands of dollars)

Account Title

Sequester
Base

Sequester
Amount

Sequester
Base

Account Title

Sequester
Amount

Federal Law Enforcement Training Center

Internal Revenue Service

Salaries and expenses (15....{l8-0 104-751-A):
Budget Authority..........
37,128
14,257
Outlays........................
33,415
12,831

Administration and Management (15--45--0911-803-

Acquisitions, construction, improvements, & related
expenses (15--OB--0105--751-A):
Budget Authority .. .......
15,630
6,002
Outlays ........................
7,815
3,001

Financial Management Service
Salaries and expenses (15-10-1 B01-B03--Aj:
Budget Authority... .......
236,521
90,B24
Outlays ........ ................
190,873
73,295
Saint Lawrence Seaway toll rebate program (15--108865--B0B--A):
Budget Authority..........
10,442
4,010
Outlays.......................
10,306
3,958

Bureau of Alcohol, Tobacco and Firearms
Salaries and expenses (15-13--1000--751-A):
Budget Authority ..........
276,520
106,184
Outlays ........ ................
248,B68
95,565

United States Customs Service
Salaries and expenses (15-15--0602-751-A):
Budget Authority..........
1,115,677
428,420
401 (C) Authority ..........
157,125
60,336
401 (C) Authority6,355
Off. Coli. ..................
16,550
410,455
1,068,892
Outlays.......................
Operation and maintenance, air interdiction program
(15-15....{l604-751-A):
92,175
Budget Authority .........
240,038
50,696
132,021
Outlays ........................
Customs forfeiture fund (15-15--5693--803--A):
5,944
Budget Authority..........
15,479
13,252
401(C) Authority ..........
34,510
19,196
Outlays ........................
49,989
Customs services at small airports (15--15--569480S-A):
Budget Authority..........
2,254
866
Outlays ....... .................
2,254
866
Payments from forfeited assets (15--15--5696--803--

A):
401 (C) Authority ......... .
Outlays ...................... ..

40,000
40,000

15,360
15,360

Mefunds, transfers and expenses, unclaimed and
abandoned goods (15--15--8789-803--A):
6,842
401 (C) Authority ..........
17,819
6,842
Outlays........................
17,819

Bureau of Engraving and Printing
lureau of Engraving and Printing fund (15-20-4S02-803--A):
401(C) Authority152,547
397,258
Off. Coli ................ ..
152,547
397,258
Outlays ...................... ..

United States Mint
.alaries and expenses (15-25--1616-803-A):
Budget Authority..........
52,410
20,125
401(C) Authority40,865
106,419
Off. CoiL ................ ..
60,672
158,001
Outlays ....................... .

Bureau of the Public Debt
dministering the public debt (15--35....{l560-803-A):
Budget AuthOrity..........
202,634
77,811
Outlays.......................
177,710
68,241

74,484
67,036

28,602
25,742

Processing tax returns and assistance (15--45--0912803-A):
Budget Authority..........
1,931 ,308
741,622
Outlays ........................
1,527,665
586,623
Tax Law Enforcement (15--45--0913-803-A):
Budget Authority .........
3,757,106
1,442,729
Outlays ........................
3,377,638
1,297,013
Federal tax lien revolving fund (15--45--4413-803-A):
401 (C) AuthorityOff. Coil. ................ ..
6,000
2,304
2,304
Outlays ....................... .
6,000
Reimbursement to State and Local Law Enforcement
Agencies (t5--45-5099-754-A):
401(C) Authority ..........
100
38
Outlays ........................
100
38

United States Secret Service
Contribution for annuity benefits (15--55--1407-751A):
6,912
401 (C) Authority ....... ..
18,000
6,912
18,000
Outlays ....................... .
Salaries and expenses (15-55--140B--751-A):
Budget Authority .........
383,321
147,195
Outlays ......................
326,726
125,463

Total, Department of the Treasury:
Budget Authority .........
401 (e) Authority ..........
401 (C) AuthorityOff. Coil. ..................
Outlays ......................

Sequester
Base

Sequester
Amount

Medical and prosthetic research (29-20-0161-703-

A):
Budget AuthOrity ......... .
Outlays ...................... ..

Account Title

8,453,886
267,554

3,246,293
102,740

532,165
7,953,883

204,352
3,054,291

Department of Veterans Affairs

A):
Budget Authority..........
Outlays.......................

222,742
164.160

85,533
63,037

Departmental Administration
Construction, major projects (29-3Q-{)110--703--A):
Budget Authority..........
425,701
163,469
Outlays........................
19,582
7,51g
Construction, minor projects (29-3Q-{)111-703-A):
Budget Authority..........
97,158
37,309
Outlays ........................
50,037
19,2t4
General operating expenses (29-30....{l151-705-A):
Budget Authority..........
850,300
326,515
Outlays ........ ......... ......
782,276
300,394
Office of the Inspector General (29-30-{)170--705--

A):
Budget Authority .........
Outlays ............. .... .......

22,847
21,248

8,773
8,159

Grants for construction of state extended care
facilities (29-30-{)181-703-A):
Budget Authority .........
43,003
16,513
Grants for the construction of State veterans
cemeteries (29-3Q-{)183--705--A):
Budget Authority..........
4,468
Outlays........................
7

1,716
3

Parking garage revolving fund (29-30-4538-703-A):
Budget Authority .........
29,742
11,421
Outlays ........................
1,487
571

Total, Department of Veterans Affairs:
Budget Authority..........
Budget AuthoritySpec. Rules .............
401 (C) AuthoritySpec. Rules ....... ......
Direct loan
Limitation .................
Outlays ........................

3,037,961

1,166,576

219,054

219,054

507

507

1,000
2,376,532

384
1,025,863

Veterans Benefits Administration

Environmental Protection Agency

Readjustment benefits (29-10--0137-702-A):
91,540
Budget Authority .. .......
238,386
84,211
Outlays........................
219,300

Environmental Protection Agency

Burial benefits and miscellaneous assistance (2910-{)155--701-A):
Budget Authority..........
143,100
54,950
54,880
Outlays........................
142,916
Direct loan revolving fund (29-10-4024-704-A):
Direct Loan
1,000
384
Limitation ......... .......

Veterans Health Services and Research
Administration
Grants to the Republic of the Philippines (29-200144-703--A):
Budget Authority..........
513
197
Outlays ........................
46
18
Medical administration and miscellaneous operating
expenses (29-20--0152-703-A):
18,782
Budget Authority..........
48,912
10,950
Outlays ........................
28,516
Medical care (29-20-0160-703-A):
Budget Authority .........
911,089
763,068
Outlays ........................
Medical care (29-20....{l160-703-G):
Budget Authority219,054
Spec. Rules ............ .
401(C) Authority507
Spec. Rules ........... ..
183,889
Outlays .................. ..

B-19

Construction grants (2(}-0Q-{) 103-304-A):
Budget Authority .........
2,075,372
33,206
Outlays.......................

796,943
12,751

Research and development (Energy supply) (2Q-{)0-0107-271-A):
Budget Authority .........
30,756
11,810
Outlays........................
10,765
4,134
Research and development (Pollution control and
abatement) (20-00-{)1 07-304-A):
Budget Authority..........
208,852
80,199
401 (C) AuthorityOff. Coli. ..................
5,000
1,920
84,364
32,396
Outlays .......................
Abatement, control, and compliance (20-<J0--0l0S304-A):
Budget Authority..........
832,261
319,588
Outlays ........................
386,063
148,248
BuUdings and facilities (20-00-{)110--304-A):
Budget Authority..........
15,267
2,520
Outlays .....................

5,863
968

Office of the Inspector General (20--0Q-{) 112-304349,858
293,018

219,054
507
183,889

A):
Budget Authority...
Outlays ................ .......

32,312
19,387

12,408
7,445

Salaries and expenses (20....{lQ-{)200--304-A):
Budget AuthOrity..
904,736
347,419
401 (C) AuthorityOff. Coil. .......
2,200
845
Outlays ............
780,273
299.625

G·R·H Sequester Amounts-Continued
(In

t~ousands

Accouni Tile

G·R·H Sequester Amounts-Continued
(In

of dollars)

Sequesler
Base

Sequesler
Amount

Account Tille

Revolving fund for certdlcat on and olher services
121MJO-43' 1-304-A)
401(CI Aulhorlty011 Col
1.200
461
Outlays
200
77
Hazardous sL.bSlance superlund (20--00-8145-304AI
BL.dgel AuthOrity
1,595,707
612,751
401(C) Au:horltyO~I Call
13,200
5,069
Obi gallon Ilmllation
197,471
75,829
Oullays
348,299
133,747
Leaking underground slorage lank lruSI fund (2000-8 I 53-304-A)
Budgel AUlhority
77,227
29.655
Oollgall()11 iJmllallc"
6,096
2,341
Oullays
23,168
8,897
Total, Environmental Protection Agency:
BL.dgel AUI~orlty
5,772,490
2,216636
401(CI AUlhorltyOtl Coli
37,600
14.439
Obligation Ilmltallon ....
203,567
78,170
Outlays
1,702,983
653,947

General Services Administration
Real Property Activities
Federal buddlngs lund (23-05-4542-804-A):
Budget Authority.
1,725,617
662,637
401 (C) AUlhorltyOlf Coil..
6,900
2,650
Oullays
351,130
134,834

Personal Property Activities
Federal supply service (23-11MJ116--804-A)
Budgel AUlhorlly
49,929
19,173
Oullays .
43,688
16,776
Fxpenses ollransportatlon audll contraelS (23-105250-804-A):
40 llC) AUlhority
15)60
6,052
Oullays
410
157

Information Resources Management
Service
Opera ling expenses, mformatlon reSOurces
managemenl service 123-15-0900-804-A):
Budgel AUlhority .
33,993
13,053
Oullays
15,t45
5,816

Federal PropeJ1y Resources Activities
Opera ling expenses, lederal property resources
sery'ce (General) (23-25-0533-804-A)
Rudget AJll0rlty.
11.593
4.452
Oul ays
8,996
3.~54
Real p'operty relocal:on (23-25-0535-804-A):
Budgel AJlhority
8.276
3.178
Oullays
753
289
Expenses. disposal of surplus reat and relaled
perscral p'oo~r (23-25-5254-804-A)
401 (C) Aut10rlty
3.800
1,459
Outlays
3,522
1.352

of dollars)

Sequester
Base

(In thousands of dollars)
Sequester
Amount

General Activities

Reglslra~lon

acd expedited processing revolving fund
(2IMJ0-4310-304-A)
4011CI Au~horltyOff Col.
16.000
6.144
Oul~ays
14}38
5.659

thousa~ds

G·R·H Sequester AmountS-Continued

Allowances and office staff for former Presidents
(23-30-D I 05-802-A):
Budget AUlhorlty...
1,487
571
Outlays.. .
1,288
495
Olflce of Inspector General (23-30-OI08-804-A):
Budget AuthOrity ...
27,458
10,544
Outlays
24,190
9,289
General r"1anagemenl and administration, salaries
and expenses (23-30-011 o-a04-A):
54,731
Budget AUlhorilY ..
142,528
37,295
Outlays
97, I 23
Consumer information center fund (23-30-4549376--A)
Budget AUlhority .........
1,402
538
401(C) AuthorltyOff. Call. ......
551
212

m

Ou~s...

Total, General Services Administration;
Budget AuthOrity ..
2,002,283
401 (C) Authority ",
19,560
401 (C) AuthorityOtf. Coil.
7,451
Outlays
547,008

m

768,877
7,511
2,862
210,050

National Aeronautics and Space
Administration
National Aeronautics and Space
Administration
Research and program management (Space flight)
(26-00-Dl 03-253-A):
Budget Authority ..
953,874
366,288
401 (C) AUlhorityOH. Coil. ........ .........
4,141
1,590
Oullays.
822,531
315,852
Research & program managemenl (Space SCience,
app!lcations. 91C) (26-DO-Ol03-254-A):
Budget AUlhorlty...
673,297
258,546
Oullays..
577,689
221,833
Research & program management (Supporting
space aCllvllies) (26-01MJ103-255-A):
Budget AUlhority ..
76,573
29,404
Outlays..
65,700
25,229
Research and program management (Air
Iransponatlon) (26-00-Dl03-402-A):
Budget AUlhority...
413,093
158,628
Oullays.
354,434
136,103
Space Flight, Conlrol, and Data Comm. (26-00-Ol05-250-A)
4011C) AuthorltyOff. Coil..
26,075
10,013
Oullays
26,075
10,013
Space Flight, COnlrol, and Data Comm. (space flight)
(26-00--Dl05-253-A)
Bueget AuthOrity
3,910,106
1,501,481
Oullays
2.855,748
1,096,607
Space FIlghl, ContrOl, and Data Comm. (supporting
aCL) (26--D1MJ1 05-255-A).
Budgel AUlhority ..
822,825
315,965
401(C) Au~rOflty.
113,829
43,710
Outlays.
492,049
188,947
Construe'.lon 01 facit ties (Space ('Ighl) (26-0IMJI07253-A)
Budget AUlhor,ty .
100,845
38,724
Oullays
5,253
2,017
ConstruClion of facililies (Soace SCience,
appllcan01s, etc) I 26-D1MJ1 07-254-A):
Budgel AUlhority
21,444
8,234
Ou Ilay s
3,530
1,356

B-20

Account Title

Sequester
Base

Sequester
Amounl

Construction of facilities (Supporting space actiVities)
(26-D0-D 107 -255-A).
207,575
79,709
Budgel Authority ......
Outlays ...................
12,018
4,615
Construction of facilities (Air transportation) (26-000107-402-A).
Budget Authority ...... .
64,000
24,576
Outlays ................. ..
3,640
1,398
Research and development (Space flighl) (26-000108-253-A):
Budget Authority .. .......
2,409,104
925,096
401 (C) AuthorityOff. Coil ......... ,.... .
10)81
4,140
Outlays .................... .
1,172,846
450,373
Research and development (Space SCience,
applications, etc) (26-00-0108-254-A)
Budget Authority.......
2,537,687
974,472
Outlays ........................
1,347,055
517,269
Research and development (Supporting space
activities) (26-01MJ108-255-A):
Budget Authority .........
20,215
7,763
Outlays.. ...,..............
14,452
5,550
Research and development (Air transportation) (26D0-0108-402-A):
Budget Authority..........
499,326
191,741
Outlays ................. .......
275,190
105,673
Office of the Inspector General (26--00--010!t-255A):
Budget Authority ....... ..
9,092
3,491
Outlays ...................... .
7,728
2,968
Science, Space and Technology Education Trust
Fund (26--0o-a978-503-A):
401 (C) Authority ..........
1,000
384
Outlays ................... " .. ,
1,000
384
Total, National Aeronautics and Space
Administration:
4,884,118
Budget Authority .... "... 12,719,056
44,094
401 (C) Authority ..........
114,829
401(C) Authorlty15,743
Off. Col!. .......... .
40,997
3,086,187
Outlays ...................... .
8,036,938

Office of Personnel Management
Office of Personnel Management
Salaries and expenses (27-D0-0100-805-A):
Budget Authority .... "...
116,199
44,620
Outlays ........................
110,389
42,389
Government payment for annuitants, employees
health benefits (27-DO-0206--551-A):
Budget Authority .... "...
3,509,563
1,347,672
Office of the Inspector General (27-00--0400--805A)

Budget Authority..........
Outlays..

3,013
2,852

1,157
1,099

Government payment for annuitants, employ. life
Insur. benefit (27-D0-0500...{l02-A):
Budget Authority ..........
6,040
2,319
Outlays ........
5,710
2,193
Revolving fund (27-00-4571-805-A):
401(C) AuthorityOft. Coil. . ..............
792
304
Outlays ................... .....
792
304
Civil service retirement and disability fund (27-'lO8135...{l02-A):
Obligation limitation .....
69,287
26,600
Outlays ........................
68,543
26,321
Employees life insurance fund (27-oo-B424-602-A).
Obligation limitation.....
1,128
433
OUdays.....................
1,128
433

G·R·H Sequester Amounts-Continued

G·R-H Sequester Amounts-Continued

G-R·H Sequester Amounts-Continued

(In thousands 01 dollars)

(In thousands 01 dollars)

(In thousands of dollars)

Sequester
Base

Account Title

Sequester
Amount

Employees health benelits lund (27-00-8440-551-

A):
Obligation limitation .....
Outlays ........................

14,987
14,987

5,755
5,755

Retired employees health benefits fund (27-<l0844S-551-A):
218
Obligation limitation.....
Outlays ........ ......... .......
218

84
84

Total, Office of Personnel Management:
Budget Authority .........
3,634,815
1,395,768
401 (C) Authority304
792
Off. Coil. ............... ..
32,878
85,620
Obligation limitation .... .
78,578
204,629
Outlays ...................... ..

Small Business Administration
Salaries and expenses (28-<l0-<l100-376-A):
Budget Authority .........
394,812
151,608
Outlays ........................
289,002
110,977
Office of the Inspector General (28-00-<l200-376A):
Budget Authority..........
7,762
2,981
Outlays ........................
6,970
2,676
Disaster loan lund (28-<>0-4153-453-A):
Budget Authority .........
375,000
144,000
Direct Loan
725,532
Limitation .................
1,889,407
53,760
Outlays ........................
140,000
Business loan and investment fund (28-<l0-4154376-A):
Budget Authority..........
88,570
34,011
Direct Loan
Limitation .................
77,629
29,810
Guaranteed Loan
limitation .................
4,684,061
1,798,679
Outlays ........................
51,058
19,606
Surety bond guarantees revolving fund (28-<l04156-376-A):
Guaranteed Loan
Limitation .................
1,532,400
588,442
332,600
755,342
2,387,121
187,019

ACTION

Advisory Comm on Conferences in Ocean
Shipping
AdviSOry Comm on Conferences in Ocean Shipping:
Sand E (30-10-2500-403-A):
Budget Authority .........
314
121

Salaries and expenses (30-1 S-<>1 00-808-A):
Budget Authority .........
1,346
Outlays ....... .................
1,232

517
473

Advisory Committee on Federal Pay
83
78

Salaries and expenses (30-2S-2300-303-A):
Bud;,et Authority .........
1,985
Outlays ........................
1,945

762
747

American Battle Monuments Commission
6,453
5,408

Appalachian Regional Commission

70,416
40,489

750
637

Sequester
Amount

Comm for Preservation of America's
Heritage Aboard
Salaries and Expenses (31-50-37oo-153-A):
208
Budget Authority..........
Outlays.. .............. ..... ...
208

BO
80

Comm. lor the Study of Int. Mig. and Coop. Econ.
De\': S (31-55-1400-153-A):
Budget Authority ..........
1,344
516
Outlays ........................
874
336

Salaries and expenses (31-6(}.2600-451-A):
Budget Authority..........
533
205
Outlays ................ ........
488
187
National capital arts and cultural affairs (31-602602-503-A):
Budget Authority .........
5,655
2,172
Outlays ....... .................
5,655
2,172

Commission on Agricultural Workers
Commission on Agricultural Workers: Salaries and
expens (31-65-<>057-352-A):
Budget Authority .........
802
308
Outlays ........................
654
251

Commission on Civil Rights

Appalachian regional development programs (3040-<l200-452-A):
Budget Authority .........
154,129
59,186
Outlays ........................
12,330
4,735

Salaries and expenses (31-7S-1900-751-A):
Budget Authority .........
5,977
Outlays........................
5,533

2,295
2,125

Comm on the Bicentennial of the U.S.
Constitution

Architectural & Transport Barriers
Compliance Brd
Salaries and expenses (30-4S-3200-751-A):
Budget Authority..........
2,017
Outlays ........................
1,801

Sequester
Base

Commission of Fine Arts

Advisory Council on Historic Preservation

Salaries and expenses (30-30-<l100-70S-A):
Budget Authority .........
16,804
14,084
Outlays ................ ........

Account Title

Comm for Study of Inti Migration & Coop
Econ Devel

Advisory Commission on
Intergovernmental Relations

775
692

Salaries and expenses (32-1 S-<>054-80B-A):
Budget Authority..........
15,551
Outlays ........................
10,673

5,972
4,098

Commission on the Ukraine famine
Arms Control and Disarmament Agency
Arms control and disarmament activities (30-500Ioo-153-A):
Budget Authority .........
34,955
13,423
11,410
Outlays........................
29,713

Barry Goldwater Scholarship Foundation

Grants and expenses (3O-B5-114S-154-A):
Budget Authority .........
197,980
Outlays........................
192,041

76,024
73,744

Israel Relay Station (30-85-1146-154-A):
Budget Authority .........
190,708
Outlays........................
57,212

73,232
21,969

Christopher Columbus Quincentennary
Jubilee Comm
Salaries and expenses (31-30-<>800-376-A):
Budget Authority .. .......
228
Outlays ................. .......
228
Gifts and donations (31-30-8095-376-A):
401 (C) Authority ..........
29
Outlays........................
27

B-21

Commission on the Ukraine Famine: Salaries and
expenses (32-35-005(}.153-A):
Budget Authority .. ....
104
40
Outlays ....... .................
104
40

Committee for Purchase from the Blind
and others
Salaries and expenses (32-4S-2000-505-A):
1,093
Budget Authority ..... ....
Outlays ..... .............. ....
997

420
383

Commodity Futures Trading Commission

Board for International Broadcasting

Administrative Conference of the United
States
Salaries and expenses (30-<lS-1 700-751-A):
Budget Authority... .......
1,952
Outlays ........ ................
1,659

Sequester
Amount

Barry Goldwater Scholarship and Excellence in
Educ. Fou (30-70-8281-502-A):
401 (C) Authority ..........
3,495
1,342
Outlays ........................
1,575
605

Other Independent Agencies

Operating expenses (30-<l1-<l103-506-A):
Budget Authority .. .......
183,376
Outlays ........................
105,441

Sequester
Base

Salaries and expenses (30-20-1800-805-A):
Budget Authority..........
215
Outlays ........ ......... .......
203

Small Business Administration

Total, Small Business Administration:
Budget Authority .........
866,144
Direct Loan
Limitation .................
1,967,036
Guaranteed Loan
limitation .................
6,216,461
Outlays........................
487,030

Account Title

Commodity Futures Trading Commission (32-551400-376-A) :
Budget Authority........
41.047
15,762
Outlays ....... .................
36,349
13,958

Competiveness Policy Council
Competiveness policy council (32-6B-375(}'376-A):
Budget Authority..........
786
302
Outlays ........................
707
271

Consumer Product Safety Commission
88
88
11
10

Product safety (32-85-{)10(}'554-A)'
Budget Authority........
36,699
401 (C) AuthorityOff. Coil.
10
Outlays .... ........... ........
31,204

14,092
4
11,982

G-R-H Sequester Amounts-Continued

G-R-H Sequesler Amounts-Continued

G-R-H Sequester Amounts-Connnued

(In thousands 01 do:lars:

(In thousands of dOllars)

(In thousands of dollars)

Account TItle

Sequester
Base

Sequester
Amount

Account Title

Sequester
Base

Sequester
Amount

Corporal ion for Public Broadcasting

Farm Credit System Assistance Board

PubliC broadcasting fund (32-90-{)151-503--A):
401(C) Authority.
298,870
114766
Outlays. .
298,870
114,766

RevolVing fund for administrative e~penses (34-154132-351-A):
Obligation limitation .....
2,312
888

Court 01 Veterans Appeals

Federal Communications Commission

Salaries and expenses (J2-95--0300-705-A):
Budget Authority..
4,070
1,563
OJllays
3,459
1,328

Salaries and expenses (34-35-0100-376--A):
Budget Authority .. ",....
112,734
43,290
Outlays .",..,.,.,.,. ...... ,...
105,970
40,692

Practice registration fee (32-95-5t 13-705-A).
401(C) Authority
5

2

Defense Nuclear Facilities Safely Board
SalarieS and expenses (33-20-3900-0S3--A):
BUdget AUlhority.
7,219
1,912
UnObligated
8alancesDefense
252
63
Outlays
7,111
1,785

Delaware River Basin Commission
Salaries and expenses (33-30-0100-301-A):
Budget Autho(lty
221
85
Outlays ''''''''''''''''''''
206
79
Contrtbution to Delaware River Basin Commission
(33--30-{)1 02-301-A):
Budget Authoflt'y,......
354
136
Outlays ............. .....
354
136

District 01 Columbia
Federal payment to the District of Columbia (33-401700-8C6--A):
Budget Authority
448,S81
172,255
401(C) Authority.
20,300
7,795
Outlays ..
468,881
180,050
Federal payment to D.C. (water and sewer services)
(33-40-1700-806--B)
Budget Authority...
9,050
3,475
Outlays..
9,050
3,475
Federal payment to D.C. (retirement funds) (33-401700-806--C):
Budget Authority .. "",,,
54,257
20,835
Outlays..
54,257
20,835
Feceral payment to D.C. (St. Elizabeth's Hospital)
133-40-1700-806--0):
Budget Autho(lty .
15,630
6,002
Outlays.
15.630
6,002
Federal payment to D.C. (Inaugural Expenses) (33-40-1 700-806--E)
Budget Authority..
33,106
12,713
Outlays.
33,106
12,713

Equal Employment Opportunity
Commission
Salaries and expenses (33-7O-Q100-751-A):
Budgel AuthOrity
193,719
74,388
Outlays.
170,783
65,581

Export.lmport Bank of the United States
E'portlmporr Bank of the United States 133-904027-1S5-A)
Budget AuthOrity..
134,877
5 t ,793
Obllgaton Ilmitat on.
22,646
8,696
Dlfeet Loan
Llmltallon.
638.100
245,030
Guaranleed Loan
LIr1ltalton
10.61 9 400
4,077,850
OJlIays
61.555
23,637

Federal Election Commission
Salaries and expenses (34-45-1600-80S-A):
Budget Authority .. ,.,....
16,051
6.167
Outlays.,. ....... ,.,. .. ,.,.,.
14,234
5,466

Federal Emergency Management Agency
Salaries and expenses (Defense·related activities)
(34-S04Jl004J54-A):
Budget Authority"""" ..
74,172
28,482
66,755
Outlays ""''''''''''''''''''''
25,634
Salaries a~d expenses (Disaster relief and
insurance) (34-50-{)1 00-453-A):
Budget Authority """""
71 ,049
27,283
Outlays ''''''''''''''''''''''''
63,944
24,S54
Emergency planning and assistance (Defense·
related activities) (34-S0-0101-0S4-A):
Budget Authority" .. ".",
250,248
96,095
Ouflays .. """" .. """"..
137,636
52,852
Emergency planning and assistance (Disaster refief
& insurance) (34-50-{)101-453--A):
Budget Authority"" .. ""
34,889
13,397
Outlays
19,189
7,369

Account Title

Sequester
Base

Sequesler
AMOunt

Federal Trade Commission
Salaries and expenses (34-85-0100-376--A)
Budget Autlhority..........
59,073
22684
401 (C) Authority'
Olf. Coil. .... " .... ,....
20,000
7,680
OUtlays..", .... "......
76,710
29,457

Franklin Delano RooseveH Memorial
Commission
Salaries and expenses (34-90-0700-80S-A):
Budget Authority" .. " .. "
29
Outlays. " ...... " ..... "....
27

11
10

Harry S Truman Scholarship Foundation
Harry S Truman memoria! schofarship trust fund
(35-10-8296-S02-A):
Obligation limitation "",
3,102
1,t91
Outlays ,.'." ......... " ......
3,058
1,174

Institute of American Indian and Alaska
Native lopment
Salaries and expenses (35-25-2900-502-A):
Budget Authority"........
4,486
1,723
Outlays."" ....... " ... """,
4,486
1,723

Institute of Museum Services
Institute of Museu'Tt Services (35-30-0300-S03-A)
Budget Authority, ..... ",.
23,633
9,075
Outlays.......................
6,193
2,378

Intelligence Community Slaff

Emergency food and shelter [34-S0-0103--605-A):
Budget AuthOrity ... "
135,556
52,054
Outlays ... " ... ""..
135,556
52,054
Disaster relief 134-50-01 04-453--A):
Budget Authority ..
1,303,490
500,540
Outlays ... """.".........
108,000
41,472
O~lce of the Insoector General (34-50-0300-453-A):
Budget Authority" ... "
2,689
1,033
Outlays,
2,474
950

Intelligence community slaH (35-35-040G-054-A):
Budget Authority ........ "
29,323
7,360
Outlays ................... ,"'.
19,646
4,001

National Insurance development fund (34-50-4235451-A):
401 (C) AuthoTity """".
242
93
Outlays """"''''''''''''
242
93

International Cultural and Trade Center
Commission

Federal Labor Relations Authority
Salaries and expenses (34-60-01 00-80S-A):
Budget AuthOrity ,,"....
18,443
7,082
Outlays
15,733
6,041

Federal Maritime Commission
Salaries and expenses (34-65-{)100-403--A):
Budget Authority...
16,188
6,216
Outlays
14,456
5,551

Interagency Council on the Homeless
Interagency Council 01 the Homeless (35-40-1301)504-A):
Budge! Authority."",....
1,133
435
Outlays .... ,.............. "
1,020
391

Inti Cultural and Trade Center Commission: Salaries
and (35-50-1800-804-A):
Budget Authority ".......
1,127
433
Outlays ..... "." .. ""........
1,072
412

International Trade Commission
Safaries and expenses (35-80-0100-153-A):
Budget Authority .... ,,,..
40,299
15,475
Outlays ..... " .. " .... ,.""...
36,726
14,f03

Interstate Commerce Commission

Federal Mediation and Conciliation
Service

Salaries and expenses (35-70-01 00-40t-A):
Budget Authority,,,, .... ,,
46,338
17,794
Outlays,...
43,094
16,548

Salaries ard expenses (34-70-{)100-505-A)
Budget AuthofICy"......
27,825
10,685
Outlays ....... "."".
24,851
9,543

Interstate Commission on the Potomac
River Basin

Federal Mine Safety and Health Review
Commission
Salaries and expenses (34-75-2800-554-A):
Budget AuthOrity ...... ".
4,223
1,622
Outlays..
3,743
1,437

B-22

Contribution to Interstate Commission on !he
Potomac Ri (35-80-0446--304-A):
Budget Authority " ... ,.
308
Outlays " .. "" .. "...........
308

118
118

G·R·H Sequester Amounts-Continued

G·R·H Sequester Amounts-Continued

G·R·H Sequester Amounts-Continued

(In thousands of dollars)

(In thousands of dollars)

(In thousands of dollars)

Account Title

Sequester
Base

Sequester
Amount

Sequester
Base

Account Title

Sequester
Amount

Japan·United States Friendship
Commission

National Commission to Prevent Infant
Mortality

Japan·United States friendship trust fund (36-158025-154-A) :
Budget Authority .........
1,250
480
Outlays ........................
1,250
480

National Commission to Prevent Infant Mortality (3790- I 50o-a08-A):
Budget Authority..........
419
161
Outlays........................
419
161

Legal Services Corporation

National Council on Disability

Payment to the Legal Services Corporation (36-500501-752-A):
Budget Authority ..........
329,820
126,651
Outlays ........................
287,272
110,312

Marine Mammal Commission
Salaries and expenses (36-70-2200-302-A):
Budget Authority ..........
1,006
Outlays ........................
791

386
304

Martin Luther King, Jr. Federal Holiday
Commission
Salaries and expenses (36-75-0600-808-A):
Budget Authority..........
314
Outlays ....... ......... ........
251

121
96

Salaries and expenses (36-80-01 00-805--A):
Budget Author"lty..........
21,926
Outlays ........................
20,350

8,420
7,814

National Archives and Records
Administration
Operating expenses (37-15-0300-804-A):
Budget Authonty..........
130,563
Outlays........................
100,704

Salaries and expenses (38~5-3500-506-A):
Budget Authority..........
1,605
Outlays ........................
1,046

National archives trust fund (37-15-8436-804-A):
401 (C) AuthorityOff. Coli ...................
4,294
11,181
Outlays ........................
11,181
4,294

National Endowment for the Arts
National Endowment for the Arts: Grants and
administrat (38-25-01 00-503-A):
Budget Authority .........
178,543
68,561
Outlays........................
59,116
22,701

National Endowment for the Humanities
National Endowment for the Humanities: Grants and
admin (38-30-0200-503-A):
Budget Authority .........
163,588
62,818
Outlays ................ ........
74,442
28,586

Payment to the National Institute of Building
Sciences (38-35-3601-376-A):
513
Budget Authority..........
Outlays ........................
513

1,244
1, I 44

Nat Comm on Amer. Indian, Alaska
Native, and Native Hawaiian Housing
Salries and Expenses (37-37~030-604-A):
Budget Authority .........
521
Outlays ................. .......
52

200
20

National Commission on Libraries and
Info. Science
Salaries and expenses (37-40-2700-503-A):
Budget Authority..........
786
302
Outlays ....... ......... ........
629
242
White House conference on library and information
servi (37-40-2701-503-A):
Budget Authority..........
3,378
1,297
Outlays ................. .......
689
265

National Mediation Board
Salaries and expenses (38-45-2400-505-A):
Budget Authority .........
6,692
Outlays ...........
5,086

2,570
1,953

National Science Foundation
Research and related activities (38-50-0100-251A):
Budget Authority..........
1,777,559
682,583
Outlays ........ .... ..... .... ...
889,592
341,603
Science and engineering education activities (38-500106-251-A):
Budget Authority .........
212,844
81,732
Outlays ........................
31,714
12,178
Academic Research Facilities (38-50~150-251-A):
Budget Authority..........
20,517
7,879
2,052
788
Outlays ........................
U.S. Antarctic program activities (38-50-0200-25 1 A):
Budget Authority .........
74,975
28,790
Outlays.................
37,113
14,251
U.S. Antarctic Logistical Support Acitivties (38-500202-251-A):
83,078
31,902
Budget Authority .. .......
15,791
Outlays ........................
41,123
Office of the Inspector General (38-50-0300-251-

A):
Budget Authority... .......
Outlays ................. .......

Nat Comm on Severely Distressed
Housing
Salaries and expenses (37-5~020-604-A):
Budget Authority..........
2,084
Outlays........................
208

197
197

Salaries and expenses (38-40-01 00-505-A):
Budget Authority..........
146,866
56,397
Outlays ........................
136,144
52,279

National Capital Planning Commission
Salaries and expenses (37-20-2500-451-A):
Budget Authority .........
3,239
Outlays ....... ......... ........
2,980

616
402

National Labor Relations Board

50,136
38,670

2,678
2,544

1,028
977

National Transportation Safety Board
800
80

Sequester
Base

Sequester
Amount

Neighborhood Reinvestment Corporation
Payment to the Neighborhood Reinvestment
Corporation (38-75-1300-451-A):
Budget Authority ......
27,669
27,669
Outlays ........................

10,625
10,625

Nuclear Regulatory Commission

National Institute of Building Sciences

Merit Systems Protection Board

Account Title

Salaries and expenses (38--60-0310-407-A):
Budget Authority..........
28,531
10,956
Outlays ....... .......
25,964
9,970

B-23

Salaries and expenses (38-85-0200-276-A):
Budget Authority .. .......
455,829
175,038
Outlays ....... ......... ........
341,872
131 ,279
Office of the Inspector General (38-85-0300-276A):
Budget Authority........
2,995
1,150
Outlays ........ ......... .......
2,216
851

Nuclear Waste Technical Review Board
Nuclear Waste Technical Review Board: Salaries
and Expe (38-95~500-271-A):
Budget Authority .........
2,068
794
Outlays ....... ......... ........
1,525
586

Occupational Safety and Health Review
Commission
Salaries and expenses (39-10-2100-554-A):
Budget Authority..........
6,257
2,403
Outlays ........ ................
5,338
2,050

Office of Government Ethics
Salaries and expenses (39-20-1100-805-A):
Budget Authority..........
3,530
Outlays ........................
3,392

1,356
1,303

Office of Navjo and Hopi Indian
Relocation
Salaries and expenses (39-21-1100-808-A):
Budget Authority... .......
37,975
14,582
Outlays ........................
13,671
5,250

Office of Special Counsel
Salaries and expenses (39-22-<l100-808-A):
Budget Authority .........
5,351
2,055
Outlays .......................
4,976
1,911

Office of the Nuclear Waste Negotiator
Office of the Nuclear Waste Negotiator: Sand E
(39--25-<l070-271-A) :
2,068
794
Budget Authority..........

Pennsylvania Avenue Development
Corporation
Salaries and expenses (39-50-0100-451-A):
Budget Authority .........
2,487
955
Outlays ........................
2,014
773
Public development (39--50-01 02-451-A):
1,260
Budget Authority.........
3,282
Outlays .......................
2,462
945
Land acquisition and development fund (39--504084-451-A) :
Budget Authority ....... .
104
40
401 (e) AuthorityOH. Coli. .....
3,000
1,152
Outlays............
3,104
1,192

G·R·H Sequester Amounts-Continued

G·R·H Sequester Amounts-Continued

G·R·H Sequester Amounts-Continued

(In thousands of dollars)

(In thousands of dollars)

(In thousands of dollars)

Account Title

Sequester
Base

Sequester
Amount

Postal Service, Payments to the Postal
Service
Payment to the Postal Service fund (3()-6(}-1 001372-AI
181,428
Budget Authority ..
472.469
OJtlays ..
472,469
181 .428
Payment to the Postal Service fund for nonfunded
lIabd (3()-6(}-1004-372-A)
Budget Authority ...
14,575
37,955
OJtlays ..
14,575
37,955

President's Comm on Catastrophic
Nuclear Accidents
Presidential Commission on CatastrophiC Nuclear
ACClden (39-7S--220(}-453-AI:
Budget Authority
375
144
OJtlays
375
144

Railroad Retirement Board
Railroad SOCial seourlty equivalent benefit account
(4(}-1 0-801 O-{iOl-AI
Obligation limitation..
32,957
12,655
OJtlays.
32,957
12,655
Rail Industry Pension Fund (40-10--801 l-{iOl-A):
Obligation limitation..
33,984
13,050
OJtlays..
33,984
13,050
Supplemental AnnUity Pension Fund (4(}-1 0--8012WI-A):
401 (CI Authority ..
111,820
42,939
Obligation limitation ..
2,307
886
OJtlays .
56,900
21,850

Securities and Exchange Commission
Salaries and expenses (40-30--010(}-37&-A):
Budget Authority
174,529
67,019
OJtlays.
147,127
56,497

Selective Service System
Salaries and expenses (40-4!H)40(}-054-A)
Budget Authority ..
27,094
Outlays..
22,244

6,801
5,583

Smithsonian Institution
Salaries and expenses (40-5!H) 100--503-AI:
Budget Authority.
236,172
90,690
OJtlays..
209,082
80,287
Construction and Improvements, National Zoological
Park (4(}-55-0129-503-A):
Budget Authority...
6,694
2,570
OJtlays..
3,012
1,157
Repair and restoration 01 bUildings (4(}-5!H)132503-AI
Budget Authority
27,581
10,591
OJtlays
1I ,032
4,236
Construction (4(}-5!H) 133-503--A):
Budget Authority...
8,671
3,330
Ou tlays
3,468
1,332
Salaries and expenses, National Gallery 01 Art (405!H)200-S03--A).
Budget Authority ...
42,063
16, I 52
OJtlays
36,679
14,085

Sequester
Base

Account Title

Sequester
Amount

Sequester
Base

Account Title

Sequester
Amount

Repair, restoration and renovation of buildings (4()5!H)201-503--A):
Budget Authority .......
1,870
718
OJtlays
198
76

National Endowment for Democracy (41-10-0210154-A)
17,475
6)10
Budget AuthOrity .........
Outlays ........................
8,291
3,164

Salaries and expenses, Woodrow Wilson
International Cen (40-55-0400-503-A):
Budget Authority...
4,849
OJtlays.. ... ".
3,006

Office of the Inspector General (41-10--0300-154_

A):
1,862
1,154

Endowment challenge fund (40-5S--8188-503--A):
401 (C) Authority .. ,.......
270
104
OJtlays
270
104
Canal Zone biological area fund (40-5S--8190-503-

A):
401 (C) Authority .. ,,"""

150

58

OJtI~s......................

1~

~

State Justice Institute
State Justice Institute (40-6S--0052-752-A):
Budget Authority .........
12,394
OJtlays ........................
3,093

4,759
1,188

Susquehanna River Basin Commission
Salaries and expenses (40-70--0500-301-A):
Budget Authority .........
206
OJtlays ........................
194
Contribution to Susquehanna River Basin
CommiSSion (40-70--0501 -301-A):
Budget Authority..........
283
Outlays ....................
283

79
74

109
109

Tennessee Valley Authority
TVA fund (Energy supply) (40-80-4110-271-A):
401 (C) AuthorityOff. Coil.
.....
58,954
22,638
Obligation limitation.....
58.954
22,638
OJtlays
58,954
22,638
TVA fund (Area and regional development) (40-804110-452-A):
Budget Authority
124,985
47,994
Obligation limitation ..
1,500
576
OJtlays
30,746
11,806

United States Holocaust Memorial Council
Holocaust MemOrial CounCil (41-OS--3300-808-A):
Budget AuthOrity .........
2,402
922
OJtlays .....
1,900
730

United States Information Agency
Salaries and expenses (41-10--0201-154-A):
Budget AuthOrity......
663,423
254,754
OJtlays..
551,312
211,704
East West Center (41-10-0202-154-A):
Budget AuthOrity.......
21,288
8,175
OJtlay s
21,288
8, 175
RadiO ClDnstructlon (41-10--0204-154-A):
Budget AuthOrity.....
87,587
33,633
OJtJays
16,642
6,391
RadiO broadcasting to Cuba (41-10-0208-154-A):
Budget AuthOrity
...
13,113
5,035
10,228
3,928
OJtlays..
Educa:lonal and cultural eXChange program (41-100209-154-A)
BUdget Authority
164,765
63,270
OJtJays..
84,030
32,268

B-24

Budget Authority ........ ..
Outlays ...................... ..

3,800
3,040

1,459
1,167

United Stales Institute of Peace
Operating expenses (41-15--1300-153--A):
Budget Authority..........
7,864
Outlays ............... ........
7,884

3,027
3,027

United States Sentencing Commission
Salaries and expenses (41-30--0938-752-A):
Budget Authority .........
7,482
2,873
Outlays ....... .................
6,887
2,645
Total, Other Independent
Budget Authority..........
401(C} Authority ..........
401(C} AuthorityOff. CoiL ................ ..
Obligation limitation .... .
Direct Loan
Limitation ................ .
Guaranteed Loan
limitation ............... ..
Unobligated
BalancesDefense ................. ..
Outlays ....................... .

Agencies:
9,980,528
435,181

3,824,063
167,110

93,145
157,762

35,768
60,580

638,100

245,030

10,619,400

4,077,850

252
6,558,451

63
2,511,931

Allowances
Allowances
G-R-H aggregate spendout rate requirement (51-\)56070-92~A):

OJtlays .. ".................

40,000

15,360

Total, Allowances:
Outlays ..... , .................

40,000

15,360

500,878,782

150,514,889

68,782

68,782

258,995
35,333,589

258,995
13,565,266

4,003,723

1,537,430

45,140
26,624,123

45,140
10,223,662

1,598,000

1,598,000

22,090,753
2,054,220

8,482,849
788,821

188,991,214

72,572,627

39,295,199
327,064,064

9,863,096
100,319,056

Total Government:
Budget Authority .........
Budget AuthorityASI .........................
Budget AuthoritySpec. Rules ............
401 (C) Authority ........
401 (C) AuthorityOff. Coil. ..................
401 (C) AuthoritySpec. Rules .............
Obligation limitation .....
Obligat. limit.-Spec.
Rules .......................
Direct Loan
Limitation ............
Direct Loan Floor ........
Guaranteed Loan
Limitation .................
Unobligated
BalancesDefense ...................
OJtlays
...........

APPENDIX C: DEFENSE PROGRAMS SEQUESTERABLE BASELINE
AND SEQUESTER AMOUNTS UNDER A $100 BILLION SEQUESTER
WITH MILITARY PERSONNEL ACCOUNTS EXEMPT
(Fiscal year 1991; in thousands of dollars)

Percentage Used:
Defense: 41.3 percent

G·R·H Sequester Amounts-Defense

G·R·H Sequester Amounts-Defense-

G·R·H Sequester Amounts-Defense-

Continued

Continued

(In thousands of dollars)

(In thousands of dollars)

(In thousands of dollars)
Account Ti~e

Sequester
Base

Sequester
Amount

Account Title

Seguester
Base

Sequester
Amount

Account Title

Sequester
Base

Sequester
Amount

Department of Defense-Military
Operation and Maintenance
Operation and maintenance, Defense agencies (071()..{)100-051-A):
3,375,139
Budget Authority .........
8,172,250
2,868,868
Outlays ......................
6,946,4 12
Court of Military Appeals, Defense (07-10-0104OS1-A):
1,707
4,132
Budget Authority ......... .
1.434
3,471
Outlays ..................... ..

Drug Interdiction Defense (07-1<Hll05-D51-A):
Budget Authority .........
Outlays...................

30,645
12,258

12,656
5.063

Goodwill Games (07-10-010&-051-Al:
Budget Authority "''''''
Outlays........................

15,132
12,106

6,250
5,000

Office of the Inspector General (07-10-0107-051-

A):
Budget Authority .........
Unobligated
BalancesDefense ................ ..
Outlays ..................... ..

100,866

41,658

19

8

75,663

31,249

Foreign currency fluctuations. Defense (07-100801-oS1-A):
Unobligated
BalancesDelense ..................
299,186
123,564
Environmental restoration, Defense (07-10-0810051-A):
Unobl igated
BalancesDefense ...................
21 I
87
48
Outlays.......................
116
Humanitarian Assistance (07-1 <Hl61 9-05 I -A):
Budget Authority ..... , .. ,
10,420
4303
Outlays.......................
7,638
3:154
Operation and mainlenance, Marine Corps (07-101106-QS1-A):
Budget Authority..........
1,887,686
779,697
Outlays......................
1,374,381
567,619
Operation and maintenance, Marine Corps Reserve
(07-10-1107-Q51-A):
Budget Authority .........
61,607
33,786
Outlays ........................
58,901
24,326
National Board for the Promotion of Rifle Practice,
Army (07-10-170S-C51-A):
~dget Authority..........
4,637
1,998
nays ........... .............
2,661
1,099
Operation and maintenance, Navy (07-10-1804OS1-A):
Budget Authority ......... 26,103,242
10,780,639
OUllays...................... 20,099,496
8,301,092
Operation and maintenance, Navy Reserve (07-101806-051-A):
Budget Authority .........
962,741
397,612
Outlays ........................
608,452
251,291
Operation and maintenance, Army (07-10-2020-

OSI-A):
Budget Authority..........
Ou~ays ........ ..... .........

24,367,435
19,851,372

10,072,011
8,198,617

Operation and maintenance, "'rmy National Guard
I07-10-2065-DS1-A):
Budget Authority .........
1,953,389
806,750
OuUays .......................
1,517,784
626,845
Operation and maintenance, Army Reserve (07-1020aO-QS1-A):
BUdgel Authority .........
911,179
376,317
Outlays .......... "............
692,496
266,001

Operation and maintenance, Air Force (07-10-3400OSI-A):
Budget Authority... ....... 23,079,903
9,532,000
Outlays ........................ 17,702,286
7,311,044
Operation and maintenance, Air Force Reserve (0710-3740-051-AJ:
Budget Authority..........
1,053,551
435,117
Outlays .......................
849,162
350,704
Operat'lon and maintenance, Air Nauonal Guard (0710-3840-0S1-A):
Budget Authority .........
2,115,710
873,788
Outlays ........................
1,707,378
705,147
Restoration of the Rocky Mountain Arsenal (07-105098-o51-A)
401 (e) Authority ..........
21,300
6,797
Unobligated
BalancesDefense ...................
29,880
12,340
Outlays........................
21,300
8,797

Procurement
Procurement, Defense agencies (07-15-0300-051-

A):
Budget Authority..........
1,387,518
573,045
Unobli9ated
Balances149,644
362,333
Defense ................. ..
209,580
507,456
Outlays ..................... .
National Guard and Reserve Equipment (07-150350-0S1-A):
Budget Authority..........
1,030,246
425,492
Unobligated
BalancesDefense ...................
476,830
196,931
Outlays .......................
162,765
67,222
Defense Production Act purchases (07-15-0360051-A):
Budget Aurhor:ty..........
45,305
18,711
Unobligated
BalancesDefense ...................
47,627
19,670

Outlays ........................

604,852

332,404

Other procurement, Navy (07-15-1810-oS1-A):
Budget Authority" ... "...
7,881,196
3,254.934
Unobligated
BalancesDefense .......
3,819,915
1,577.625
Outlays ." ................... "
1,275,421
526,749
Aircraft procurement, Army (07-15-2031-Q51-A):
Budget Authority.....
3,844,510
1,587,783
Unobligated
BalancesDefense ...................
702,737
290,230
Outlays ......................
591,142
244,142
Missile procurement, Army (07-1>'2032-051-A):
Budget Authority..........
2,587,403
1,068,597
Unobligated
BalancesDefense ...................
651,960
269,259
Outlays ........ ................
161,968
66.893
Procurement of weapons and tracked combat
vehicles, Army (07-1>.2033-051-A):
1,047,116
Budget Authority ''''''''
2,535,390
Unobligated
Balances453,199
Defense ...................
1,097,334
15,003
Outlays ...................
36,327
Procurement of ammunition, Army (07-15-2034051-A):
833,168
Budget Authority .........
2,017,357
Unobligated
Balances101,736
246,335
Defense ................. ..
317,868
769,655
Outlays ...... , .......... ,.... .
Other procurement, Army (07-15-2035-051-A):
Budget Authority ........
3,615,676
1,493,274
Unobligated
Balances481,810
Defense ...................
1,166,611
177,758
Outlays ........................
430,406
Aircraft procurement, Air Force (07-15-3010-051-

A):

Chemical ager,ts and munitions destruction, Defense
(07-15-Q390-Q51-A):
Budget Authority ........
264,898
109,403
Unobligated
BaJancesDefense ...................
17,287
7,140
Outlays ................ "......
107,512
44.402
Procurement, Marine Corps (07-15-1109-051-A):
Budget Authority.......
1,210,839
500,076
Unobligated
Balances91,843
222,381
Defense ................. ..
92,932
225,016
Outlays ...................... ..

Missile procurement, Air Force (07-15-3020-051-

Aircraft procurement, Navy (07-15-150S-OS1-A):
Budget AUlhollty..........
9,543,052
3,941,280
Unobligated
BalancesDefense .................
1,851,479
768,791
Outlays ........................
1,539,612
635,860

Other procurement, Air Force (07-15-3080-051-A):
Budget Authority .........
8,839,294
3,650,628
Unobligated
Balances864,619
Defense ..................
2,093,509
2,591,752
6,275,429
Outlays .....................

Weapons procurement, Navy (07-1>'1S07-051-A):
Budget Authority..........
5,528,022
2,283,073
Unobligated
BalancesDefense.................
1,411,075
582,774
624,519
257,926
Outfays .... ...................

Research, Development, Test, and
Evaluation

Shipbuilding and cor.version, Navy (07-15-1611051-A):
Budget Authority.......... 1I ,682,207
4,824,751
UnObligated
BalancesDefense ................
8,439,096
3,485,347

C-3

Budget Authonty ......
Unobligated
BalancesDefense ...................
Outlays .......................

16,037,703

7,132,556
926,810

6,623,571

2,945,746
382,773

A):
Budget Authority .........
Unobligated
BalancesDefense ...................
OUtlays.......................

6,584,129

2,719,245

2,538,951
1,879,355

1,048,587
776,174

Research, development, lest, and evaluation,
Defense agencies (07-2~400-051-A):
Budget Authority.........
6,384,756
3,462,904
Unobligated
Balances406,681
984,699
Defense ............... "
2,077,967
5,031,397
Outlays ................... .

G·R·H Sequester Amounts-Defense-

G·R·H Sequester Amounts-Defense---

Conbnued

Continued

Continued

(In thousands of dollars)

(In thousands of dollars)

(In thousands of dollars)

Account Title

Sequester
Base

Sequester
Amount

Developmental test and evaluation, Defense (07-2004:A1-"J51-A)
Budget Authority .
185}06
76,697
Unobligated
BalancesDefense
32)33
13,519
Outlays
46,965
19,397
Operational test and evalualJon, Defense (07-200460-"J51-A)
Budget AuthOrity ..
13.259
5,476
Unobligated
BalancesDe'e~se ..
1,909
788
Outlays
606
250
Research, development, test, and evalualion, Navy
(07-20-1319-"J51-A)
Budget AuthOrity ..
9,885,776
4,082,825
Unobligated
BalancesDefense ..
440,048
181,740
Outlays ..
5,782,461
2,388,156
Research, development, test, and evaluation, Army
(07 -20-2040-"J51-A):
Budget Authority ...
5,556}52
2,294,939
Unobligated
BalancesDefense
351,349
145,107
Outlays.
3,013,132
1,244,424
Research, development, test, and evalualion, Air
Force (07-20-3600-051-A):
Budget AuthOrity ..
14,042,510
5}99,557
Unobligated
BalancesDefense ..
1,874,192
774,041
Outlays ..
9,152,103
3,779,819

Military Construction
Base realignment and closure account (07-2~
01 03-"J51-A):
Budget Authonty ..
521,000
215,173
Unobligated
BalancesDefense ...... """ ...... .
65,000
35,105
Outlays.
203,616
84,093
Military construction, Defense agencies (07-2~
0500-"J51-A):
Budget Authon ty ..
531,243
219,403
Unobligated
BalancesDefense.
353,696
146,076
Outlays.
123,891
51,167
Foreign currency fluctuations, construction (07-2~
0803-"J5 I -A):
Unobligated
BalancesDefense ..
152,484
62,976
North Atlanlic Treaty Organrzatlon Infrastructure (0725-"J804-"J51-A)
Budget Authonty ..
419,706
173,339
Unobligated
BalancesDefe~se .
19,231
7,942
Outlays
67,787
36,256
Mlilary construction, Navy (07-25-1205-"J51-A)
Budget Authority ..
1,167,506
482,180
Unobllga:ed
BalancesDefense
420, ~ 92
173,539
Outlays
261,970
108,194

Sequester
Base

Account Title

Sequester
Amount

Military constnuction, Naval Reserve (07-2~123~
051-A):
Budget Authority.
58,977
24,358
Unobligated
BalancesDefense ..
10,545
4,355
Outlays......,
9,733
4,020
Military construction, Army
Budget AuthOrity
Unobligated
BalancesDefense ....
Outlays.

(07-2~205O-"J51-A):

760,686

314,163

338,004
351,581

139,596
145,203

Military construction, Army National Guard (07-2~
2085-"J51-A):
Budget Authority '''"" ..
240,171
99,191
Unobligated
BalancesDefense .......... .
93,727
38,709
Outlays" .••• ",,, ...
24,040
9,929
Military construction, Army Reserve (07-25-2086051-A):
Budget Authority
103,31g
42,671
Unobligated
BalancesDefense .,,'"
35,015
14,461
Outlays"",
18,675
7,713
Military constnuction, Air Force (07-2~3300-051-A):
Budget Authority,
1,223,616
505,353
Unobligated
BalancesDefense.
558,550
230,661
Outlays "
294,058
121,446
Military constnuction, Air Force Reserve (07-2~
3730-"J51-A)
Budget Authority".
48,140
19,882
Unobligated
BalancesDefense ..... .
12,163
5,023
Outlays ...•..
6,452
2,665
Military cOnstnuctlon, Air National Guard (07-2~
3630-"J51-A)
Budget AuthOrity .
245,773
101,504
Unobligated
BalancesDefense ....
104,179
43,026
Outlays. ,. .., •... ".,
27,996
11,562

Family Housing
Family hOUSing, Army (07-30-"J702-"J51-A):
Budget Authority
1,508,704
623,095
Unobt'gated
BalancesDefense
92,975
38,399
Outlays.
1,055,380
435,872
Family hOUSing, Navy and Marine Corps (07-300703-"J51-A) :
Budget Authority .
831,850
343,554
Unobligated
BalancesDefense ..
137,094
56,620
Outlays..
415,815
171,732
Family hOUSing, Air Force (07-30-"J704-"J51-A):
Budget Authority..
906,544
374403
Unobligated
'
BalancesDefense.
57,950
23,933
Outlays.
564,695
233,219

C-4

G-R·H Sequester Amounts-Delens&-

Account Title

Sequester
Base

Sequester
Amount

Family housing, Defense agencies (07--3O-"J706OS1-A):
Budget Authority ""'"''
22,011
9,091
Unobligated
BalancesDefense
70
29
Outlays """"
15,116
6,243

Revolving and Management Funds
National Defense StOCkpile tranSaction fund (07-404555-<J51-A):
Unobligated
BalancesDefense """."".,,'
421,828
174.215
Air Force stock fund (07-40-4921-051-A)
Budget Authority"
115,766
47,81:
Outlays ""." .... """.",,..
45,149
18,647
Emergency response fund (07-40-4965-o51-A)
Budget Authority ""''''
104,200
43,035
Unobligated
BalancesDefense "".".".""....
100,000
41,300
Army industrial fund (07-40-4992-o51-A):
Budget Authority" .. """
31,052
12,824
Outlays •• "" •••• """,,
12,110
5,001
Total, Department of Defense-MIlitary:
Budget Authority.""" .. 222,418,893 91,859,003
401 (e) Authority "''''''''
21,300
8}97
UnObligated
BalancesDefense """" •• "..... 39,294,947
16,228,811
Outlays " ..•. "".,,"'"
114,406,308 47,249,811

Department of Energy
Atomic Energy Defense Activities
Atomic energy defense aclivities (19-1Q-{122(}-053-

A):
Budget Authority""."",
Outlays ........ "."" .. "",,.

10,052,119
6,533,877

4,151,525
2,698,491

Total, Department of Energy:
Budget Authority .. "",,. 10,052,119
Outlays " •... """" .. ,,",,.
6,533,877

4,151,525
2,698,491

Department of Transportation
Maritime Administration
Ready reserve force (21-3~171 M54-A):
Budget Authority .........
92,738
Outlays "" ......... "",,.,,"
71,408

38,301
29,492

Total, Department of Transportation:
Budget Authority "." .. "
92,738
Outlays """"''''''''''''''
71,408

38,301
29,492

Other Independent Agencies
Defense Nuclear Facilities Safety Board
Salaries and expenses (33-20-3900-053-A):
Budget Authority .........
7,219
2,981
Unobligated
BalancesDefense .... """",,.,,"
252
104
Outlays ..••. """" .... ".,,
7,111
2,937

Intelligence Community Staff
Intelligence community staff (3~35-04QO-{)54-A)
Budget Authority ..... "".
29,323
12,110
Outlays ... " ..... " ••.. "."
19,646
8,114

G-R-H Sequester Amounts-Defense-

G-R-H Sequester Amounts-Defense-

Continued

Continued

Continued

(In thousands of dollars)

(In thousands of dollars)

(In thousands of dollars)

Account Title

Sequester
Base

Sequester
Amount

Selective Service System
Salaries and expenses (40--45--0400-054-A):
Budget Authority..........
27,094
11,190
Outlays........................
22,244
9,187

Account Title

Sequester
Base

Total, other Independent Agencies:
Budget Authority..........
63.636
Unobligated
BalancesDefense ...................
252
Outlays ........................
49,001

C-5

Sequester
Amount

26,281

104
20,238

G-R-H Sequester Amounts-Defense-

Account Title

Sequester
Base

Total:
Budget Authority .......... 232,627,386
401 (C) Authority .... ......
21,300
Unobligated
BalancesDefense ................... 39,295,199
Outlays ........................ 121,060,594

Sequester
Amount

96,075,110
8,797

16,228,915
49,998,032

APPENDIX D: SUMMARY TABLES

Table D-l. MID-SESSION REVIEW: OUTLAYS FOR MANDATORY AND RELATED PROGRAMS UNDER CURRENT LAW
(In billions of dollars)

1990
Mandatory programs:
Human resources programs:
Education, training, employment, and social services ................................ .
Health:
Medicaid .................................................................................................. .

1991

1992

1993

1994

1995

10.9

12.5

11.4

11.0

11.4

11.9

40.9

47.6
3.5
51.0
102.9

54.1
4.5
58.6
117.6

60.4
5.4
65.8
131.8

66.8
6.1
73.0
147.7

73.0
6.9
80.0
164.9

')1;

~;~~.::::~:::::::::~:::::::::~::::::~:~:::~~~:~:::~:~:~~~~:~~~::~~~~~: ~I~~~--~·~~~I~~~~~~~~~~~~~~~~~~~~~~~~~~~
40.4
94.5
Medicare ......................................................................................................... .
Income security:
62.0
57.2
65.0
68.7
Retirement and disability ...................................................................... .
72.4
76.1
18.7
16.9
19.0
19.7
Unemployment compensation ................................................................ .
20.4
21.1
21.7
24.2
25.5
26.9
29.3
28.1
Food and nutrition assistance ............................................................... .
?R R
34.2
40.1
34.8
36.4
39.4
Other ......................................................................................................... ~I~~--::--=-:--=-i~~~7::":::-=-+-~~-:-c-:-::-+~~----:::-::-:--=-t-~~~..:...:...:-+~~----::-=-:--:1:'::4.·'
139.1
144.3
151.7
Subtotal income security ........................................................................ .
160.3
166.6
264.6
246.4
281.7
298.7
Social security ................................................................................................ .
315.5
332.4
Veterans benefits and services:
16.9
15.3
17.3
17.6
18.1
Income security for veterans ................................................................. .
19.2
O~
0.8
0.9
0.9
1.0
1.0
Other ......................................................................................................... ----::-::-:::-t-----::::-::-t----:-:::-::--t-----=-=--=-t-----==.......t------::-::..:..:..17.7
10.:'::
18.2
18.5
Subtotal veterans benefits and services
20.2
19.1
536.1
587.8
Total mandatory human resources programs ....................................... .
631.8
677.5
728.0
774.9
Other mandatory programs:
-1.0
-2.6
International afTairs
-0.9
-1.0
-1.3
-1.1
-1.6
-0.7
-1.0
Energy ............................................................................................................. .
-0.8
-1.0
-0.8
10.7
9.9
13.6
14.5
Agriculture
14.2
13.3
Commerce and housing credit:
57.1
62.6
41.3
-5.4
RTC
-41.7
-20.0
1~ q
11.5 ___=~
10.7
10.6
8.2 __----::~_
Other ......................................................................................................... ~_---:~:-+
___;;-:;-~
-..:.::-.::::--+-__
-..:=+
6.4
74.1
11.1
52.0
Subtotal commerce and housing credit ................................................. .
5.2
-33.5
-13.6
1.0
0.9
1.0
0.8
Community and regional development
0.8
0.8
0.1
1.1
1.1
Justice ...................... .
1.1
1.2
1.2
0.8
1.2
1.3
General government
1.0
0.8
0.9
of<
of<
of<
-0.1
Other functions
-0.1
-0.1
78.7
86.3
67.2
Total other mandatory programs
20.8
-18.6
0.5
674.2
614.7
Total mandatory programs ..................................................................... .
699.0
698.3
709.4
775.4
Net interest:
289.5
261.1
303.3
Interest on the public debt ................................................................................... .
310.4
313.7
316.0
Interest received by:
-45.3
-49.9
-54.4
-57.8
On·budget trust funds
-60.7
-63.4
-15.8
-21.3
-26.8
OfT-budget trust funds ................................................................................... .
-32.3
-37.6
-43.5
_HI!;
-22.7
-23.1
-21.0
-18.0
-15.5
Other interest ...................................................... ···················································1f----~.;-:-:--t----:-::~:-t----:-::::-:::--1I-----,-::.:.:.:::....+----~
195.6
199.0
Total net interest
199.3
197.3
193.6
Undistributed ofTsetting receipts:
Employer share, employee retirement:
-28.3
-29.4
-30.2
On.budget
-31.6
-33.0
-34.2
-5.6
-5.9
OfT-budget ....................................................................................................... .
-6.4
-7.0
-7.7
-8.3
-?_
~ +-_
-3.4
-3.6
Rents and royalties on the Outer Continental ShelL ........................................ ,f-_ _ _ _
-3.3
-3.5
-3.6
-38.7
-40.2
Total undistributed ofTsetting receipts
-41.9
-44.3
-46.1
;;;:~
831.1
857.7
Total outlays for mandatory and related programs under current law .....
855.7
862.4
922.9
f-I

tJ

I
c..:>

___

1-,

~o~."t"

I

*$50 million or less.

Section 221(b) of the Legislative Reorganization Act of 1970 (30 USC 1106) requires that the
Mid-Session Review include a summary "for the four fiscal years following the fiscal year for
which the budget is submitted, information on estimated expenditures for programs authorized
to continue in future years, or that are considered mandatory, under current law." These
projections indicate that under existing legislation and the economic assumptions shown in
Table 1, mandatory program outlays would rise by an average annual growth rate of 4.8 percent
between 1990 and 1995 while net interest would rise by an average 1.3 percent.
The law requires a projection of estimated spending in the four succeeding fiscal years from
the balances of budget authority outstanding at the end of 1991. These estimates for relatively
controllable programs are provided in Table D-2. Table D-2 also provides the estimated amount
of budget authority that will remain unexpended or that will have expired at the end of 1995.
The amount of budget authority balances for non mandatory programs at the end of 1991 is
estimated to total $629.4 billion. It is estimated that $240.3 billion (38 percent) will be spent in
1992 and that $127.1 billion (20 percent) will be spent in 1993. None of the balances are
projected to expire between 1992 and 1995. At the end of 1995, it is estimated that $125.6 billion
(20 percent) will still be unexpended.

d

i

Table 0-2. MID-SESSION REVIEW: ESTIMATED SPENDING
FROM END OF 1991 BALANCES OF BUDGET AUTHORITY:
NONMANDATORYPROGRAMS
(In billions of dollars)
Total
Total balances, end of 1991 (Mid-Session estimate)
Spending from 1991 balances in:
1992
1993
1994
1995
Expiring balances, 1992 through 1995
Unexpended balances as of the end of 1995

629.4
240.3
127.1
80.5
55.9
125.6

Table D-3. MID-SESSION REVIEW: ADJUSTED CONSOLIDATED BASELINE RECEIPrS BY MAJOR SOURCE
(In billions of dollars)
Actual
1989

?
01

Current Estimates

January Estimates
1990

Individual income taxes ..............................
Corporation income taxes ...........................
Social insurance taxes and contributions ..
On-budget ..............................................
OfT-budget .............................................
Excise taxes ..................................................
Estate and gift taxes ...................................
Customs duties and fees .............................
Miscellaneous receipts .................................
Total, receipts ................................

445.7
103.3
359.4
(95.8)
(263.7)
34.4
8.7
16.3
22.8
990.7

489.0
111.9
385.4
(99.9)
(285.4)
36.2
9.3
16.8
24.4
1,072.8

ADDENDUM
On-budget .....................................................
OfT-budget .....................................................

727.0
263.7

787.4
285.4

1991

1992

1993

1994

523.6
560.0
597.2
634.7
128.6
141.1
155.7
161.8
416.9
478.5
509.9
444.3
(105.0) (110.5) (117.7) (124.3)
(311.8) (333.8) (360.8) (385.5)
34.9
37.0
34.9
36.0
9.8
11.0
10.3
10.4
18.2
19.7
21.0
22.5
24.3
24.6
24.6
25.0
1,156.3 1,234.9 1,323.5 1,401.9
844.5
311.8

901.1
333.8

962.6
360.8

1016.4
385.5

1995

1990

1991

1992

503.5
536.9
672.0
476.1
114.3
126.7
172.4
98.0
438.6
380.2
413.5
537.6
(130.0)
(98.7) (104.1) (109.7)
(407.6) (281.5) (309.4) (328.8)
34.5
33.8
36.7
38.1
11.4
12.5
10.7
11.4
16.9
18.2
19.5
24.2
26.4
26.6
25.4
25.0
1,480.8 1,044.0 1,121.7 1,194.5
1073.2
407.6

762.5
281.5

812.3
309.4

865.7
328.8

1993

1994

611.6
573.7
148.8
137.0
506.7
473.8
(118.0) (125.8)
(355.8) (380.8)
35.9
34.9
12.9
13.2
21.5
20.5
25.6
25.6
1,278.7 1,363.1
922.9
355.8

982.2
380.8

1995
645.9
160.6
535.9
(132.6)
(403.3)
37.0
13.8
22.5
25.5
1,441.1
1,037.9
403.3

Table D-4. MID-SESSION REVIEW: ADJUSTED CONSOLIDATED BASELINE OUTLAYS BY AGENCY
(In billions of dollars)
--

Actual
1989

t::I
I

(j')

-

Current Estimates

January Estimates
1990

Legislative Branch ................................ " .....
2.3
2.1
The Judiciary ................................................
1.5
1.7
Executive Office of the President ...............
0.2
0.1
Funds Appropriated to the President.. .......
4.3
9.2
Department of Agriculture ..........................
48.3
48.3
Department of Commerce ............................
2.6
3.9
Department of Defense-Military ...............
294.9
286.8
Department of Defensc-{;ivil ....................
23.5
24.8
Department of Education ............................
21.6
22.3
Department of Energy .................................
11.4
12.3
Department of Health and Human Services,
172.3
191.2
except Social Security .............................
Department of Health and Human Services,
Social Security .........................................
227.5
244.6
Department of Housing and Urban Development ..........................................................
19.7
22.8
Department of the Interior""" .. " ................
5.2
5.8
Department of Justice .................................
6.2
6.9
Department of Labor ...................................
22.7
24.9
Department of State ....................................
3.7
3.8
Department of Transportation ....................
26.6
28.3
Department of the Treasury ........................
230.6
247.2
Department of Veterans Arrairs ..................
30.0
28.7
Environmental Protection Agency ..............
4.9
5.5
General SelVices Adminstration .................
-{l.5
0.3
National Aeronautics and Space Administration .......................................................
11.0
12.0
Office of Personnel Management.. ..............
29.1
33.2
Small Business Administration ..................
0.1
1.1
Other Independent Agencies .......................
32.5
24.2
On-budget ..............................................
(32.8)
(24.2)
(-{l.3)
Orr-budget ..............................................
(-)
Allowances ....................................................
Undistributed orrsetting receipts ................
--89.2
-97.3
On-budget ..............................................
(-72.9)
(-76.1)
Orr-budget ..............................................
(-16.3)
(-21.2)
Total, outlays .................................. 1,142.6 1,194.8

1995

1991

1992

1993

1994

1995

1990

1991

1992

1993

1994

2.4
1.8
0.3
12.0
53.9
2.7
296.0
26.1
23.8
13.8

2.5
1.9
0.4
13.1
58.2
2.7
307.1
27.6
24.3
14.6

2.5
1.9
0.3
12.3
58.9
2.7
317.2
29.1
24.8
15.4

2.6
2.0
0.3
12.2
59.3
2.8
328.8
30.7
25.5
16.1

2.7
2.1
0.3
12.9
60.1
2.8
340.3
32.2
26.2
16.8

2.3
1.7
0.2
10.7
47.6
3.9
290.3
24.8
22.9
12.3

2.4
1.8
0.3
12.1
52.4
2.8
296.3
26.3
25.0
13.8

2.5
1.9
0.4
13.1
57.1
2.7
306.7
27.9
25.1
14.7

2.5
1.9
0.3
12.9
60.1
2.8
315.4
29.5
25.1
15.4

2.6
2.0
0.3
12.9
61.5
2.8
330.4
31.0
25.9
16.1

13.7
62.0
2.8
337.8
32.6
26.9
16.8

208.7

231.0

252.5

276.9

301.0

192.4

216.0

239.0

262.6

289.0

314.4

260.7

276.2

292.6

309.1

325.5

244.9

262.9

279.4

296.0

312.5

329.0

22.9
6.1
8.5
26.1
3.8
29.7
256.5
30.5
5.7
0.1

23.3
6.4
9.9
27.0
3.9
30.6
260.2
31.3
5.7
-0.1

23.2
6.7
10.0
28.0
4.1
31.5
265.2
33.8
5.7
-{l.1

23.5
6.9
9.8
29.0
4.2
32.5
269.1
33.3
5.9
-{l.1

23.8
7.2
10.1
30.2
4.3
33.0
271.3
32.5
6.0
-{l.1

21.4
6.1
6.9
25.5
3.8
28.5
252.4
29.3
5.3
0.4

23.3
6.2
8.8
28.1
3.9
29.9
279.8
31.2
5.7
0.9

23.4
6.7
10.1
28.8
4.0
30.7
295.5
32.3
5.7
1.0

23.7
7.0
10.0
29.9
4.2
31.4
304.9
33.2
5.7
1.5

23.7
7.2
10.1
30.9
4.3
32.1
311.8
35.5
5.9
1.7

23.5
7.5
10.4
31.9
4.4
33.0
317.3
34.9
6.0
1.7

12.9
36.6
0.5
22.4
(22.4)

13.2
38.9
0.4
16.2
(16.2)

13.6
41.9
0.5
16.6
(16.6)

14.1
44.8
0.6
15.1
(15.1)

14.6
47.7
0.7
14.4
(14.4)

12.1
32.8
0.7
81.0
(81.0)

12.9
36.7
0.5
82.9
(82.9)

13.2
39.1
0.5
60.2
(60.2)

13.6
42.2
0.6
13.5
(13.5)

14.1
45.1
0.7
-24.9
(-24.9)

14.6
48.1
0.8
-4.7
(-4.7)

(-)

(-)

(-)

(-)

(-)

(-)

(-)

(-)

(-)

(-)

(-)

-

-

-

0.1
-107.8
(-81.4)
(-26.4)

-118.9
(-87.0)
(-31.9)

-128.6
(-90.7)
(-37.9)

-140.1
(-95.6)
(-44.5)

-151.2
(-99.8)
(-51.3)

1,256.8

1,307.8

1,362.6

1,415.0

1,467.4

1,262.5

-109.8
(-82.6)
(-27.2)
1,353.1

1,022.6
234.2

1,063.5
244.3

1,107.9
254.7

1,150.4
264.6

1,193.2
274.2

1,038.9
223.6

1,117.4
235.7

-

-97.8
(-76.4)
(-21.3)

*

-

-

-

2.7
2.1

o.a

-

-122.2
(-88.9)
(-33.3)

-132.0
(-92.7)
(-39.3)

-142.7
-153.0
(-97.4) (-lOLl)
(-45.3)
(-51.9)

1,399.5

1,413.9

1,442.7

1,517.9

1,153.3

1,157.1

1,175.5

246.1

256.7

267.2

1,240.7
277.2

ADDENDUM
On-budget .....................................................
Orr-budget .....................................................

931.7
210.9

971.4
223.4

-

*$50 million or less.

L..

Table D-5. MID-SESSION REVIEW: ADJUSTED CONSOLIDATED BASELINE OUTLAYS BY FUNCTION
(In billions of dollars)
Actual
1989

?
-l

1990

1991

1992

1993

1994

1995

1990

1991

1992

1993

1994

1995

303.6
(294.9)
(8.7)
9.6
12.8
3.7
16.2
16.9
27.7
(28.0)
(-0.3)
27.6
5.4

296.3
(286.8)
(9.6)
14.6
14.1
3.2
17.5
14.6
20.3
(20.3)

306.4
(296.0)
00.5)
17.9
15.2
4.6
18.1
17.6
16.8
06.8)

318.1
(307.1)
01.0)
19.3
15.7
4.5
19.1
20.1
11.7
01.7)

328.6
(317.2)
(11.4)
18.8
16.1
5.1
19.1
19.4
11.9
01.9)

340.6
(328.8)
(11.8)
18.7
16.7
5.4
19.7
18.2
10.5
00.5)

352.5
(340.3)
02.2)
19.7
17.3
5.5
20.1
17.4
9.5
(9.5)

299.9
(290.3)
(9.6)
15.5
14.2
3.3
17.8
12.5
75.7
(75.7)

306.8
(296.3)
00.5)
18.1
15.2
4.9
18.6
13.4
77.7
(77.7)

317.6
(306.7)
01.0)
19.4
15.7
4.8
19.4
16.4
55.8
(55.8)

326.8
(315.4)
(11.4)
19.4
16.1
5.4
20.0
17.4
9.1
(9.1)

342.2
(330.4)
01.8)
19.6
16.7
5.5
20.7
17.2
-29.3
(-29.3)

350.0
(337.8)
02.2)
20.6
17.3
5.6
21.2
16.4
-9.5
(-9.5)

29.3
8.8

30.7
8.1

31.7
7.2

32.7
7.3

33.6
7.4

34.1
8.0

29.5
8.3

36.7
48.4
85.0
136.0
232.5
(5.1)
(227.5)
30.1
9.4
9.1
169.1
(180.5)
(-11.4)

37.6
57.8
96.6
146.6
248.5
(3.9)
(244.6)
28.9
10.5
10.6
175.6
091.2)
(-15.6)

40.6
64.4
104.2
157.0
264.7
(4.1)
(260.7)
30.6
12.8
11.0
174.3
(194.8)
(-20.5)
0.1

42.0
70.8
118.4
163.6
280.9
(4.7)
(276.2)
31.5
14.3
11.6
167.6
093.0)
(-25.4)

43.2
77.3
132.4
170.5
297.7
(5.1)
(292.6)
34.0
14.9
11.6
163.9
(194.7)
(-30.8)

44.6
83.7
147.8
178.9
314.6
(5.5)
(309.1)
33.5
15.0
11.8
158.4
095.2)
(-36.8)

46.0
90.2
164.5
185.7
331.5
(6.0)
(325.5)
32.6
15.5
12.2
151.1
094.1)
(-43.0)

38.3
58.2
96.9
148.5
248.7
(3.8)
(244.9)
29.4
10.5
10.6
181.4
097.2)
(-15.8)

National defense ..........................................
Defense-Military .................................
Other .....................................................
International affairs ....................................
General science, space, and technology .....
Energy ..........................................................
Natural resources and environment ..........
Agriculture ...................................................
Commerce and housing credit ....................
On.budget ..............................................
Off·budget .............................................
Transportation .............................................
Community and regional development ......
Educational, training, employment, and so·
cial services ..............................................
Health ...........................................................
Medicare .......................................................
Income security ............................................
Social security ..............................................
On.budget ..............................................
Off·budget .............................................
Veterans benefits and services ...................
Administration of justice .............................
General government ....................................
Net interest ..................................................
On.budget ..............................................
Off·budget .............................................
Allowances ....................................................
Undistributed offsetting receipts:
Employer share, employee retirement
(on.budget) .........................................
Employer share, employee retirement
(off·budget) .........................................
Rents and royalties on the Outer Con·
tinental Shelf.....................................
Total, undistributed offsetting receipts
On.budget ......................................
Off·budget ......................................
Total, outlays ........................................

-2.9
-37.2
(-32.4)
(-4.9)
1,142.6

-2.6
-36.5
(-30.9)
(-5.6)
1,194.8

ADDENDUM
On.budget .....................................................
Off·budget .....................................................

931.7
210.9

971.4
223.4

*$50 million or less.

Current Estimates

January Estimates

-

(-)

-

(-)

(-)

-

(-)

-

(-)

-

(-)

-

(-)

-

(-)

(-)

(-)

30.9
8.1

31.8
7.3

32.5
7.4

42.5
67.0
105.4
164.3
266.9
(4.0)
(262.9)
31.4
13.0
11.9
195.6
(216.9)
(-21.3)

42.9
75.2
120.2
170.4
284.1
(4.7)
(279.4)
32.5
14.5
12.7
199.0
(225.8)
(-26.8)

43.6
83.2
134.5
178.3
301.2
(5.2)
(296.0)
33.4
14.9
13.2
199.3
(231.6)
(-32.3)

•

-

-

(-)

33.3
7.5
45.1
91.0
150.5
187.2
318.1
(5.6)
(312.5)
35.7
15.4
13.5
197.3
(234.9)
(-37.6)

-

(-)

34.1
7.7
46.8
98.6
167.7
193.9
335.1
(6.0)
(329.0)
35.1
15.9
14.0
193.6
(237.1)
(-43.5)

-

-29.4

-28.3

-29.5

-30.3

-31.7

-33.1

-34.3

-28.3

-29.4

-30.2

-31.6

-33.0

-34.2

-4.9

-5.6

~.O

-6.5

-7.1

-7.7

-8.3

-5.6

-5.9

~.4

-7.0

-7.7

-8.3

1,256.8

-3.4
-40.2
(-33.7)
(-6.5)
1,307.8

-3.1
-41.8
(-34.8)
(-7.1)
1,362.6

-3.3
-44.1
(-36.5)
(-7.7)
1,415.0

-3.5
-46.2
(-37.9)
(-8.3)
1,467.4

-2.9
-36.7
(-31.2)
(-5.6)
1,262.5

-3.4
-38.7
(-32.7)
(-5.9)
1,353.1

1,022.6
234.2

1,063.5
244.3

1,107.9
254.7

1,150.4
264.6

1,193.2
274.2

1,038.9
223.6

1,117.4
235.7

-3.0
-38.4
(-32.5)
(~.O)

1,399.5

-3.3
-41.9
(-34.8)
(-7.0)
1,413.9

-3.6
-44.3
(-36.7)
(-7.7)
1,442.7

-3.5
-46.1
(-37.8)
(-8.3)
1,517.9

1,153.3
246.1

1,157.1
256.7

1,175.5
267.2

1,240.7
277.2

-3.6
-40.2
(-33.8)
(~.4)

Table D-6. MID-SESSION REVIEW: ADJUSTED CONSOLIDATED BASELINE ourLAYS BY CATEGORY
(In billions of dollars)
-

Actual
1989
Defense ..........................................................
International discretionary .........................
Domestic discretionary ................................
Mandatory ....................................................
Asset sales and prepayments ......................
User fees and other collections ...................
Net interest. ..................................................
Other undistributed olTsetting receipts ......
Total, outlays ..................................

t:1

c1

303.6
16.6
169.0
528.6
-7.0

169.1
-37.2
1,142.6

Current Estimates

January Estimates
1990

1991

1992

1993

1994

1995

1990

1991

1992

1993

1994

1995

296.3
17.3
184.2
560.1
-2.3

306.4
18.9
193.6
601.9

318.1
20.1
200.9
641.3

328.6
19.7
207.4
684.9

340.6
20.0
213.5
726.7

352.5
20.7
219.4
769.9

306.8
19.1
196.1
674.2

317.6
20.3
203.8
699.0

326.8
20.5
210.9
698.3

350.0
21.6
223.4
775.4

-

-

-

342.2
20.9
217.3
709.4

-

299.9
18.5
185.3
614.7
-0.6

-

-

-

175.6
-36.5
1,194.8

174.3
-38.4
1,256.8

167.6
--40.2
1,307.8

163.9
--41.8
1,362.6

-

-

-

-

158.4
--44.1
1,415.0

151.1
--46.2
1,467.4

181.4
-36.7
1,262.5

-

-

195.6
-38.7
1,353.1

-

199.0
--40.2
1,399.5

-

-

-

-

-

-

199.3
--41.9
1,413.9

197.3
--44.3
1,442.7

193.6
--46.1
1,517.9

Table D-7. MID-SESSION REVIEW: ADJUSTED CONSOLIDATED BASELINE BUDGET AUTHORITY BY AGENCY
(In billions of dollars)
Actual
1989

t:l
I

(.D

Current Estimates

January Estimates
1990

1991

1992

1993

1994

1995

1990

1991

1992

1993

1994

1995

2.3
1.5
0.1
11.0
55.7
2.8
290.8
37.2
23.0
11.7

2.2
1.7
0.3
12.4
55.2
3.6
291.4
36.7
24.1
14.3

2.3
1.8
0.3
12.4
61.2
2.7
305.4
38.5
24.3
15.2

2.4
1.9
0.3
13.1
64.2
2.6
317.9
40.2
24.8
15.5

2.5
2.0
0.3
13.5
64.3
2.7
330.1
42.6
25.5
16.1

2.6
2.0
0.3
13.7
64.4
2.7
341.6
45.0
26.2
16.7

2.7
2.1
0.3
14.6
67.9
2.8
352.6
47.1
26.8
17.3

2.2
1.7
0.3
12.4
54.2
3.7
289.4
36.7
24.7
14.3

2.3
1.8
0.3
13.0
61.8
2.7
303.5
38.7
25.7
15.1

2.4
1.9
0.3
13.7
66.1
2.6
315.6
40.6
25.6
15.5

2.5
2.0
0.3
14.1
66.4
2.7
327.4
43.1
25.7
16.1

2.6
2.1
0.3
14.4
69.2
2.8
338.7
45.6
26.7
16.7

2.7
2.1
0.3
15.4
70.4
2.8
349.3
47.9
27.6
17.3

196.6

212.3

231.0

251.1

274.1

299.0

322.0

213.2

234.7

253.6

278.1

303.6

326.1

279.9

306.6

338.3

365.7

398.7

430.0

459.0

302.8

336.6

362.1

395.1

426.1

455.1

Legislative Branch .......................................
The Judiciary ...............................................
Executive Office of the President ...............
Funds Appropriated to the President ........
Department of Agriculture ..........................
Department of Commerce ...........................
Department of Defense-Military ..............
Department of Defense-Civil ....................
Department of Education ............................
Department of Energy .................................
Department of Health and Human Services,
except Social Security .............................
Department of Health and Human Services,
Social Security .........................................
Department of Housing and Urban Development .....................................................
Department of the Interior .........................
Department of Justice .................................
Department of Labor ...................................
Department of State ....................................
Department of Transportation ....................
Department of the Treasury .......................
Department of Veterans Affairs ..................
Environmental Protection Agency ..............
General Services Administration ................
National Aeronautics and Space Administration ......................................................
Office of Personnel Management.. ..............
Small Business Administration ..................
Other Independent Agencies .......................
On-budget ..............................................
Off-budget .............................................
Undistributed offsetting receipts ................
On-budget ..............................................
Off-budget .............................................
Total, budget authority .................

14.3
5.5
6.7
29.9
4.1
28.5
232.1
29.9
5.1
0.2

18.4
6.2
8.6
32.5
4.2
30.2
248.5
29.9
5.4
0.1

17.8
6.4
9.4
32.2
4.4
31.2
257.7
31.0
5.6
0.1

17.1
6.6
9.8
32.6
4.5
32.4
261.3
31.6
5.7
0.1

17.8
6.8
9.8
33.4
4.7
33.6
266.4
32.4
5.9
0.2

18.2
7.1
10.0
34.2
4.8
34.8
270.4
33.3
6.1
0.2

18.4
7.3
10.3
34.6
5.0
35.9
272.5
34.3
6.3
0.2

17.9
6.6
8.8
32.1
4.3
30.2
254.4
30.5
5.4
1.8

18.2
6.5
9.7
32.2
4.5
31.2
280.9
31.8
5.6
1.8

17.3
6.9
10.0
33.5
4.6
32.4
296.4
32.6
5.7
1.9

18.3
7.1
10.2
35.3
4.8
33.6
305.9
33.4
5.9
2.0

18.4
7.4
10.3
37.2
4.9
34.8
312.9
34.1
6.1
2.1

18.5
7.6
10.6
38.8
5.1
35.9
318.5
34.9
6.3
2.1

11.0
51.2
0.4
67.5
(65.9)
(1.6)
-89.2
(-72.9)
(-16.3)
1,309.9

12.3
55.6
0.9
17.2
(17.2)

12.8
58.5
1.0
16.5
(16.5)

13.4
62.1
1.0
19.0
(19.0)

13.9
65.4
1.0
19.9
(19.9)

14.4
68.8
1.1
21.9
(21.9)

14.8
71.7
1.1
20.6
(20.6)

12.3
55.6
0.9
18.9
(18.9)

12.8
58.8
1.0
48.1
(48.1)

13.4
62.9
1.0
50.7
(50.7)

13.9
66.5
1.0
38.8
(38.8)

14.3
69.7
1.1
26.5
(26.5)

14.8
72.7
Ll
22.9
(22.9)

(-)

(-)

(-)

(-)

(-)

(-)

(-)

(-)

(-)

(-)

(-)

(-)

-97.3
(-76.1)
(-21.2)
1,333.6

-107.8
(-81.4)
(-26.4)
1,410.2

-118.9
(-87.0)
(-31.9)
1,478.2

-128.6
(-90.7)
(-37.9)
1,555.1

-140.1
(-95.6)
(-44.5)
1,629.3

-151.2
(-99.8)
(-51.3)
1,697.3

-97.8
(-76.4)
(-21.3)
1,337.6

-109.8
(-82.6)
(-27.2)
1,469.6

-122.2
(-88.9)
(-33.3)
1,547.3

-132.0
(-92.7)
(-39.3)
1,618.3

-142.7
-153.0
(-97.4) (-lOLl)
(-45.3)
(-51.9)
1,686.0 1,754.1

ADDENDUM
On-budget .....................................................
Off-budget .....................................................

1,044.6
265.3

1,048.1
285.4

1,098.4
311.8

1,144.4
333.8

1,194.3
360.8

1,243.8
385.5

1,289.7
407.6

1,056.1
281.5

1,160.2
309.4

1,218.4
328.8

1,262.5
355.8

1,305.2
380.8

1,350.8
403.3

Table 0-8. MID-SESSION REVIEW: ADJUSTED CONSOLIDATED BASELINE BUDGET AurHORITY BY FUNCTION
(In billions of dollars)
Actual
1989

t::)

I
f-'

o

National defense ...........................................
Defense-Military .................................
Other ......................................................
International alTairs .....................................
General science, space, and technology ......
Energy ...........................................................
Natural resources and environment.. .........
Agriculture ....................................................
Commerce and housing credit.. ...................
On-budget ..............................................
OIT-budget ..............................................
Transportation ..............................................
Community and regional development ......
Educational, training, employment, and social services ..............................................
Health ...........................................................
Medicare .......................................................
Income security ............................................
Social security ..............................................
On-budget ..............................................
OIT-budget ..............................................
Veterans benefits and services ....................
Administration of justice .............................
General government ....................................
Net interest. ..................................................
On-budget ..............................................
OIT-budget ..............................................
Undistributed olTsetting receipts:
Employer share, employee retirement
(on-budget) .........................................
Employer share, employee retirement
(olT-budget) .........................................
Rents and royalties on the Outer Continental ShelL ...................................
Total, undistributed olTsetting receipts
On-budget .......................................
Orr-budget .......................................
Total, budget authority ..................

Cu ITent Estimates

January Estimates
1990

1991

1992

1993

1994

1995

1990

1991

1992

199:i

1994

299.6
(290.8)
(8.7)
17.3
12.9
4.1
17.0
21.3
61.9
(60.3)
(1.6)
29.3
7.9

301.6
(291.4)
(10.3)
18.6
14.6
5.6
17.0
18.0
15.5
(15.5)

316.1
(305.4)
(10.7)
19.0
15.2
6.3
18.2
22.2
12.8
(12.8)

329.0
(317.9)
(11.1)
20.0
15.8
6.1
19.0
25.2
13.0
(13.6)

341.6
(330.1)
(11.5)
20.9
16.4
6.6
19.4
23.7
13.5
(13.5)

353.6
(341.6)
(11.9)
21.5
17.0
7.0
20.1
20.8
16.1
(16.1)

364.9
(352.6)
(12.3)
22.7
17.5
7.3
20.7
21.7
15.2
(15.2)

299.6
(289.4)
(10.3)
19.0
14.6
4.9
17.7
13.9
17.9
(]7.9)

314.2
(303.5)
(10.7)
19.9
15.2
6.8
18.9
19.0
44.7
(44.7)

326.7
(315.6)

:c!39.0
(:327.4 )
(] 1.5)
21.9
16.4
6.7
20.5
22.0
32.9
(:32.9)

:i"0.6
(:i:iH.7)
(] 1.9)
22.5
17.0
7.0
21.2
19.9
22.8
(22.8)

38.8
51.7
107.3
173.4
285.0
(5.1)
(279.9)
30.0
10.0
10.6
169.1
(180.5)
(-11.4)

39.6
60.3
116.9
183.2
310.5
(3.9)
(306.6)
30.0
12.2
10.5
175.6
(191.2)
(-15.6)

41.6
65.6
125.1
192.1
342.3
(4.1)
(338.3)
31.1
13.7
11.1
174.3
(194.8)
(-20.5)

42.8
72.0
137.6
199.6
370.4
(4.7)
(365.7)
31.7
14.2
11.5
167.6
(193.0)
(-25.4)

43.9
78.3
153.5
208.0
403.8
(5.1)
(398.7)
32.5
14.8
11.9
163.9
(194.7)
(-30.8)

-29.4

-28.3

-29.5

-30.3

--4.9

-5.6

-6.0

-6.5

-2.9
-37.2
(-32.4)
(--4.9)

(-)
31.2
9.0

(-)

32.3
9.6

(-)

33.5
9.1

(-)

(-)

(-)

(-)

(-)

(] 1.1)

20.9
15.8
6.2
19.3
22.3
46.9
(46.9)
(-)

(-)

(-)

1995
:c!61.6
(:i4~U)

02.:i)
2:i.H
17.5
7.1
21.9
20.6
17.7
07.7)
(-)

37.1
9.9

31.2
9.8

32.3
9.4

33.5
8.9

34.7
9.2

36.0
9.4

:nl

45.4
84.8
169.3
217.6
435.5
(5.5)
(430.0)
33.4
15.3
12.1
158.4
(195.2)
(-36.8)

46.9
91.6
184.9
224.4
464.9
(6.0)
(459.0)
34.4
15.8
12.6
151.1
(194.1)
(--43.0)

40.4
61.1
116.2
184.9
306.6
(3.8)
(302.8)
30.6
12.4
12.0
181.4
(197.2)
(-15.8)

43.7
68.2
122.9
198.2
340.6
(4.0)
(336.6)
31.9
14.0
12.8
195.6
(216.9)
(-21.3)

43.6
76.5
1:34.1
206.5
366.8
(4.7)
(362.1)
32.8
14.5
13.3
199.0
(225.8)
(-26.8)

44.1
84.3
149.7
217.0
400.2
(5.2)
(395.1)
33.5
15.1
13.7
199.3
(231.6)
(-32.3)

46.0
92.2
164.5
228.4
431.7
(5.6)
(426.1)
34.2
15.6
13.9
197.3
(234.9)
(-37.6)

47.7
100.0
178.8
236.2
461.2
(6.0)
(455.1)
35.0
16.1
14.5
193.6
(237.1)
(--43.5)

-31.7

-33.1

-34.3

-28.3

-29.4

-30.2

-31.6

-33.0

-34.2

-7.1

-7.7

-8.3

-5.6

-5.9

-6.4

-7.0

-7.7

-8.3

34.8
9.4

36.0
9.7

9.7

-2.6

-3.0

-3.4

-3.1

-3.3

-3.5

-2.9

-3.4

-3.6

-3.3

-3.6

-3.5

-36.5
(-30.9)
(-5.6)

-38.4
(-32.5)
(-6.0)

--40.2
(-33.7)
(-6.5)

--41.8
(-34.8)
(-7.1)

--44.1
(-36.5)
(-7.7)

--46.2
(-37.9)
(-8.3)

-36.7
(-31.2)
(-5.6)

-38.7
(-32.7)
(-5.9)

--40.2
(-33.8)
(-6.4)

--41.9
(-34.8)
(-7.0)

--44.3
(-36.7)
(-7.7)

--46.1
(-37.8)
(-8.3)

1,390.9

1,333.6

1,410.2

1,478.2

1,555.1

1,629.3

1,697.3

1,337.6

1,469.6

1,547.3

1,618.3

1,686.0

1,754.1

1,044.6
265.3

1,048.1
285.4

1,098.4
311.8

1,144.4
333.8

1,194.3
360.8

1,243.8
385.5

1,289.7
407.6

1,056.1
281.5

1,160.2
309.4

1,218.4
328.8

1,262.5
355.8

1,305.2
380.8

1,350.8
403.3

ADDENDUM
On-budget ..............................................
Olr-budget ..............................................

'--

Table D-9. MID·SESSION REVIEW: ADJUSTED CONSOLIDATED BASELINE NEW DffiECT LOAN OBLIGATIONS
BY AGENCY
(In billions of dollars)
Actual
1989

oI

Funds Appropriated to the President ........
Department of Agriculture ..........................
Department of Education ............................
Department of Housing and Urban Development ........................................................ ,
Department of Interior ................................
Department of Labor ...................................
Department of State ....................................
Department of Transportation ....................
Department of Veterans Affairs ..................
Environmental Protection Agency ..............
Small Business Administration ..................
Other Independent Agencies:
Export-Import Bank .............................
National Credit Union Administration
Tennessee Valley Authority .................
Total, new direct loan obligations

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

0.4
12.7

...

0.5

1990

1991

0.4
13.3

...

1992

0.4
14.2

...

1993

0.5
14.4

...

0.6

0.6

0.6

...
...

•

...

...

of<

of<

1.1

0.9

of<

...

Current Estimates

January Estimates

...

...

,.

*
*

,.

*

0.8

...

1995

1994

0.5
14.3

,.

0.5
14.4

...

0.5
14.4

,.

0.7

0.7

0.7

,.

of<

...

...
...

of<

...

*

,.

0.4
11.8

...

0.6

...
...

0.7

*

0.1
0.5

0.1
0.5

of<

of<

of<

of<

0.4
12.7

...

0.6

*

1.0

...

1993

0.5
13.1

...

0.6

...

...
...

,.*

*
*

...

,.

*

0.1
0.6

1992

1991

1990

1.1

1.1

of<

*

1995

1994
0.5
13.9

*

...

0.5
13.9

0.7

0.7

0.7

0.5
13.5

•,.

...

...
...

...
...

of<

,.

0.1
1.0

0.1
1.0

0.1
0.9

...

,.

...

...

0.2

1.9

0.4

0.4

0.5

0.5

0.5

1.5

0.4

0.4

0.5

0.5

0.5

0.7
0.2
0.3
16.2

0.6
0.2
0.3
18.4

0.6
0.3
0.3
17.8

0.7
0.1
0.3
17.9

0.7
0.1
0.4
17.8

0.7
0.1
0.4
17.9

0.7
0.1
0.4
18.0

0.6
0.2
0.3
16.6

0.6
0.3
0.3
16.6

0.7
0.1
0.3
16.9

0.7
0.1
0.4
17.4

0.7
0.1
0.4
17.9

0.7
0.1
0.4
17.8

*$50 million or less.

Table D-IO. MID-SESSION REVIEW: ADJUSTED CONSOLIDATED BASELINE NEW DIRECT LOAN OBLIGATIONS
BY FUNCTION
(In billions of dollars)
Actual
1989
International affairs ....................................
Energy ..........................................................
Natural resources and environment ..........
Agriculture ...................................................
Commerce and housing credit ....................
Transportation .............................................
Community and regional development ......
Education, training, employment, and social
services .....................................................
I ncome security ............................................
Veterans benefits and services ...................
Total, new direct loan obligations

1.9
1.2
0.1
8.2
3.0

*

January Estimates
1990
1.8
2.1
0.1
7.8
3.0

*

0.8

2.6

..

..

1.1
16.2

...

1992

1991
1.9
2.2

*

8.5
3.2

*

1993

2.0
2.2

Current Estimates
1994

2.1
2.4

1995

2.1
2.5

2.2
2.5

...

of<

of<

...

8.5
3.1

8.2
3.2
0.1
1.2

8.0
3.3
0.1
1.2

7.9
3.4
0.1
1.3

..
...

..
..

0.6
17.8

0.5
17.9

of<

1.1

1.2

..

*of<

..*

0.9
18.4

0.8
17.8

0.7
17.9

1990

1991

1.8
1.3
0.1
7.0
3.0

1992

1.9
2.2

1993

2.0
2.2

2.1
2.4

1994

1995

2.1
2.5

2.2
2.5

of<

of<

of<

...

7.0
3.1

of<

...

7.2
3.1

2.2

1.1

1.2

7.4
3.2
0.1
1.2

7.6
3.3
0.1
1.2

7.4
3.4
0.1
1.3

..

...

...

..

*...

..
..

..
..

..
..

0.5
18.0

1.0
16.6

1.1
16.6

1.1
16.9

*
*

1.0
17.9

0.9
17.8

of<

1.0
17.4

*

-~--

--

*$50 million or less.

Table D-11. MID-SESSION REVIEW: ADJUSTED CONSOLIDATED BASELINE NEW GUARANTEED LOAN COMMITMENTS
BY AGENCY
(In billions of dollars)
Adual
1989
Funds Appropriated to the Pre"ident .........
Department of AbTTicultu~ ..........................
Department of Commerce ............................
Department of Education ...........................
Department of Health and Human Services
Department of Housing and Urban Development .......................................................
Department of Interior ................................
Department of the Treasury ........................
Department of Veterans Affairs ..................
Small Business Administration ..................
Other I ndepcndent Agencies:
Export.Import Bank .............................
Federal Horne Loan Bank Board .........
National Credit Union Administration
Total, new guarantee commitments

t:I
I

I-'

tv

Current

January Estimates
1990

1991

1992

1995

1994

199:1

1992

1991

1990

1995

1994

1993

E.~timates

5.4
5.5
0.1
11.9
0.3

2.1
8.8
0.1
12.7
0.3

0.4
8.9
0.1
12.9
0.3

0.4
9.0
0.1
13.9
0.3

0.5
9.1
0.2
14.6
0.3

0.5
9.3
0.2
15.3
0.3

0.5
9.4
0.2
16.0
0.3

2.1
7.0
0.1
12.6
0.3

0.4
8.9
0.1
12.9
0.3

0.4
9.0
0.1
13.8
0.3

0.5
9.1
0.2
14.5
0.3

0.5
9.3
0.2
15.2
0.3

0.5
9.4
0.2
15.9
0.3

54.5
0.1
0.4
14.4
3.7

63.7

.

77.1

..

80.2

83.1

.

86.0

.

88.6

.

63.8

.

77.5

.

80.2

83.1

..

86.0
0.1

0.6
15.0
4.5

0.5
16.2
4.7

0.7
14.9
4.8

-

-

15.1
5.3

0.5
18.3
4.7

0.7
17.1
4.8

-

14.9
5.1

0.5
16.5
4.5

-

14.7
5.0

15.7
5.0

14.8
5.1

88.6
0]
15.1
5.3

5.6
3.5

10.2

10.6

]1.0

11.5

11.8

12.2

10.2

10.6

lIB

12.2

-

-

-

-

-

11.0
-

n.5

-

.

-

.

-..

.

..

..

.

.

.

.

..

.

-

.

.

--

105.4

118.1

131.7

135.5

138.9

143.3

147.5

117.7

134.2

137.4

139.9

143.2

55.1

81.7

85.1

88.5

91.7

94.9

97.8

81.7

87.1

90.7

92.7

94.9

-

.

147.5

97.8

ADDENDUM
Secondary guaranteed loans .......................
"$50 million or less.

Table D-12. MID-SESSION REVIEW: ADJUSTED CONSOLIDATED BASELINE NEW GUARANTEED LOAN COMMITMENTS
BY FUNCTION
(In billions of dollars)
Actual
1989
International affairs ....................................
Agriculture ...................................................
Commerce and housing credit ....................
Community and regional development ......
Education, training, employment, and social
services .....................................................
Health ...........................................................
Veterans benefits and services ...................
General government ....................................
Total, new guarantee commitments

Current Estimates

January Estimates
1990

1991

1992

1993

1994

1995

1990

1991

1992

1993

1994

1995

11.0
5.4
61.7
0.3

12.3
8.5
68.2
0.5

11.0
8.7
81.7
0.4

11.5
8.8
84.9
0.4

11.9
8.9
88.1
0.5

12.3
9.0
91.0
0.5

12.7
9.1
93.9
0.5

12.3
6.8
68.3
0.5

11.0
8.7
82.1
0.4

11.5
8.8
84.9
0.4

11.9
8.9
88.1
0.5

12.3
9.0
91.0
0.5

12.7
9.1
93.9
0.5

11.9
0.3
14.4
0.4
105.4

12.7
0.3
15.0
0.6
118.1

12.9
0.3
16.2
0.5
131.7

13.9
0.3
14.9
0.7
135.5

14.6
0.3
14.7

15.3
0.3
14.9

16.0
0.3
15.1

15.9
0.3
15.1

147.5

13.8
0.3
17.1
0.7
137.4

15.2
0.3
14.8

143.3

12.9
0.3
18.3
0.5
134.2

14.5
0.3
15.7

138.9

12.6
0.3
16.5
0.5
117.7

139.9

143.2

147.5

55.1

81.7

85.1

88.5

91.7

94.9

97.8

81.7

87.1

90.7

92.7

94.9

97.8

-

-

-

-

-

ADDENDUM
Secondary guaranteed loans .......................
*$50 million or less.

t:l

....I

~

Table D-13. MID-SESSION REVIEW: JANUARY/.nJNE PROPOSED RECEIIYfS BY MAJOR SOURCE
On billions of dollars)
Actual
1989

t::l
I

*"'-

1990

1991

1992

1993

1994

1995

1990

]991

1992

1993

1994

1995

609.4
146.9
511.4
(127.7)
(383.7)
41.2
12.9
22.0
26.2
1,370.0

642.7
158.0
540.8
(134.5)
(406.3)
42.6
13.8
23.0
26.1
1,447. ]

Individual income taxes ...............................
Corporation income taxes ............................
Social insurance taxes and contributions ..
On-budget ..............................................
OIT-budget ...........................................
Excis(> taxes ..................................................
Estate and gift taxes ....................................
Customs duties and fees ..............................
Miscellaneous receipts .................................
Total, receipts ..............................

445.7
103.3
359.4
(95.8)
(263.7)
34.4
8.7
16.3
22.8
990.7

489.4
112.0
385.4
(99.9)
(285.4)
36.2
9.3
]6.8
24.4
1,073.5

528.5
129.7
421.4
(106.9)
(314.5)
37.6
9.8
]8.6
24.6
1,170.2

561.5
140.6
449.7
(1123)
(337.4)
39.2
10.3
20.1
25.0
1,246.4

593.6
154.7
481.4
(119.5)
(361.9)
40.8
10.4
21.5
25.2
1,327.6

632.4
159.9
514.6
(126.2)
(388.4)
42.2
11.0
23.0
25.5
1,408.6

668.7
169.7
542.5
(1318)
(410.7)
43.7
11.4
24.8
25.6
1,486.3

476.1
98.2
380.2
(98.7)
(281.5)
36.7
10.7
16.9
25.5
1,044.2

508.4
115.1
418.1
(106.0)
(312.1)
37.2
11.4
18.6
26.7
1,135.4

538.3
126.1
444.0
( 1116)
(332.4)
38.2
12.5
19.9
26.9
1,206.0

570.2
135.9
476.8
(119.9)
(356.9)
39.8
13.2
20.9
26.2
1,283.0

ADDENDUM
On·budget .....................................................
OIT·budget .....................................................

727.0
263.7

788.0
285.4

855.7
314.5

909.0
337.4

965.6
361.9

1,020.2
388.4

1,075.6
410.7

762.8
281.5

823.2
312.1

873.6
332.4

926.1
356.9

-

'-'

Currenl Estimate"

January Estimates

986.3
383.7

1,<»0.7
406.3

Table D-14. MID-SESSION REVIEW: JANUARY/JUNE PROPOSED OUTLAYS BY AGENCY
(In billions of dollars)
Actual
1989

o
I

~

01

Legislative Branch .......................................
The Judiciary ...............................................
Executive Office of the President ...............
Funds Appropriated to the President ........
Department of Agriculture ..........................
Department of Commerce ...........................
Department of Defense-Military ..............
Department of Defense-Civil ....................
Department of Education ............................
Department of Energy .................................
Department of He alth and Human Services,
except Social Security .............................
Department of Health and Human Services,
Social Security .........................................
Department of Housing and Urban Development .....................................................
Department of the Interior .........................
Department of Justice .................................
Department of Labor ...................................
Department of State ....................................
Department of Transportation ....................
Department of the Treasury .......................
Department of Veterans Affairs ..................
Environmental Protection Agency ..............
General Services Administration ................
National Aeronautics and Space Administration ......................................................
Office of Personnel Management ................
Small Business Administration ..................
Other Independent Agencies .......................
On.budget ......................................
Off·budget ......................................
Allowances:
Civilian pay reform ..............................
Employee health benefits reform ........
Reduced Government mail rates .........
Total, allowances ...........................
Undistributed offsetting receipts ................
On.budget ..............................................
OfT-budget .............................................
Subtotal, January proposal outlays
6/20 proposals ..............................................
Total, outlays .................................

1990

1991

1992

1993

1994

1995

1990

1991

1992

1993

1994

1995

2.1
1.5
0.1
4.3
48.3
2.6
294.9
23.5
21.6
11.4

2.3
1.7
0.2
9.2
48.2
3.9
286.8
24.8
22.3
12.3

2.7
2.0
0.3
12.2
48.7
2.8
292.1
25.5
23.7
13.4

2.8
2.2
0.4
13.2
50.3
2.7
296.9
26.6
24.1
15.7

2.7
2.3
0.4
12.5
48.7
2.6
299.0
27.7
24.1
16.5

2.8
2.4
0.4
12.5
47.8
2.6
302.3
28.8
24.3
17.2

2.8
2.4
0.4
13.3
47.4
2.3
304.8
29.9
24.5
17.7

2.3
1.7
0.2
10.7
47.5
3.9
290.2
24.8
22.9
12.3

2.7
2.0
0.3
12.1
46.6
2.8
292.2
25.5
24.8
13.4

2.8
2.2
0.4
12.9
47.6
2.7
297.4
26.7
24.9
15.7

2.7
2.3
0.4
12.5
48.9
2.6
299.1
27.9
24.4
16.5

2.9
2.3
0.4
12.7
48.9
2.6
306.2
29.0
24.6
17.2

2.9
2.4
0.4
13.4
48.3
2.3
306.7
30.1
25.0
17.7

172.3

191.2

204.1

222.6

241.2

262.9

283.9

192.4

210.4

230.9

251.6

275.4

298.0

227.5

244.6

260.1

275.3

291.7

308.2

324.6

244.9

262.2

278.3

295.1

311.5

328.0

19.7
5.2
6.2
22.7
3.7
26.6
230.6
30.0
4.9
-{).5

22.8
5.8
6.9
24.9
3.8
28.3
247.2
28.7
5.5
0.3

23.0
5.7
9.0
26.3
4.1
28.8
254.9
30.1
5.8

23.9
5.7
10.1
27.0
4.3
29.1
257.7
30.8
5.7
0.3

24.3
5.8
9.9
27.8
4.4
29.7
274.5
33.1
5.6
0.3

25.0
5.8
9.7
28.7
4.5
30.2
315.1
32.5
5.4
0.2

26.1
5.7
9.9
29.8
4.6
30.2
361.9
31.6
5.2
0.1

21.4
6.1
6.9
25.5
3.8
28.5
252.4
29.3
5.3
0.4

23.1
5.6
9.1
28.0
4.1
29.0
277.8
30.8
5.8
0.5

23.8
5.7
10.2
28.9
4.3
29.2
292.1
31.7
5.7
1.2

24.2
5.8
10.1
29.7
4.4
29.5
298.5
32.4
5.6
1.2

24.4
5.9
9.8
30.7
4.5
29.9
302.3
34.5
5.4
1.1

24.8
5.8
9.9
31.6
4.6
30.3
304.4
33.9
5.2
0.5

14.1
33.6
0.3
23.5
(21.8)
0.7)

16.4
34.8
0.1
16.4
05.7)
(0.7)

lS.1
37.4
0.2
16.0
(15.9)
(0.1)

19.4
39.8
0.3
14.4
04.5)

12.1
32.8
0.7
82.9
(S1.0)
(1.9)

14.1
33.6
0.3
82.1
(82.4)
(-{).3)

16.4
34.8
0.2
59.6
(59.6)
(0.1)

18.1
37.4
0.3
12.7
(12.7)

19.4
39.9
0.4
-26.2
(-25.7)
(-{).5)

20.1
42.3
0.4

(-{).l)

20.1
42.3
0.4
13.3
(13.7)
(-{).4)

-

-

-

-

11.0
29.1
0.1
32.5
(32.8)
(-0.3)

12.0
33.2
1.1
26.6
(24.2)
(2.4)

-

-

-

*$50 million or less

-

-

-

--

--

...

-

-

-

-

1,142.6

1,197.2

1,233.3

1,271.4

1,321.8

1,398.0

1,476.9

1,264.3

-{).8
-{).2
-1.1
-114.6
(-88.0)
(-26.6)
1,323.4
-11.7
1,311.7

931.7
210.9

971.5
225.S

997.4
236.0

1,026.5
244.9

1,067.1
254.7

1,133.9
264.1

1,203.8
273.1

1,038.8
225.5

1,076.3
235.4

-

-89.2
(-72.9)
(-16.3)
1,142.6

-

-

-97.3
(-76.1)
(-21.2)
1,197.2

-

ADDENDUM
On.budget .....................................................
OfT·budget .....................................................

Current Estimates

January Estimates

-{).8
-{).2
-1.1
-112.6
(-86.8)
(-25.9)
1,233.3
-

-{).9
-{).2
-1.1
-122.5
(-91.4)
(-31.1)
1,271.4

-

-1.1
-1.0
-1.0
-{).2
-{).2
-{).2
-1.3
-1.2
-1.2
-156.8
-144.0
-133.7
(-96.5) (-100.0) (-105.6)
(-51.1)
(-37.2) (-44.0)
1,321.8 1,398.0 1,476.9

-

-

-

-97.8
(-76.4)
(-21.3)
1,264.3

-

( ...)

~.4

(-5.5)
(-{).9)

0.2
-{).9
-{).2
-{).9
-125.S
(-93.4)
(-32.4)
1,359.6
-19.7
1,339.8

0.3
0.5
0.8
-1.0
-1.0
-1.1
-{).2
-{).2
-{).2
-{).9
-{).7
-{).5
-137.1
-146.6
-158.6
(-98.5) (-101.8) (-106.9)
(-38.6)
(-44.8)
(-51.6)
1,355.8 1,368.2 1,423.6
-23.7
-29.7
-31.9
1,332.2 1,338.5 1,391.7

1,093.9
246.0

1,075.7
256.4

1,072.4
266.2

1,116.3
275.4

Table D-15. MID-SESSION REVIEW: JANUARY/JUNE PROPOSED OUTLAYS BY FUNCTION
(In billions of dollars)
-

Actual
1989
defense ...........................................
.................................

~se-Military

r .. __ ... __ .. __ .. __ . __________ ... ________ .. __ ... __ . __ ...

)nal afTairs .....................................
;cience, space, and, technology .....

........................................................
'Csources and environment ...........
re ....................................................
e and housing credit.. ...................
~dget ..............................................
~dget ..............................................
.alion ..............................................
ty and regional development ......
I, training, employment, and social
s .....................................................

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

.......................................................
tj

So

I

f-'

0">

V,
A
G
N,
A

u

curity ............................................
IJrity ..............................................
Idgct ............................. __ ...............
,dget ..............................................
lCncfits and services ....................
Ition of justice ..............................
)vernment ....................................
st. ..................................................
dget ..............................................
Idget ..............................................
s:
m pay reform ...............................
.yee health benefits reform .........
ed Government mail rates .........
)tal, allowances ............................
lted ofTsetting receipts:
Iyer share, employee retirement
budget) .........................................
Iyer share, employee retirement
budget) .........................................
and royalties on the Outer Conntal Shelf .....................................
f major assets ..............................
undistributed ofTsetting receipts
ltal, undistributed offsetting receipts ...........................................

On-budget ................................
Off-budget ...............................
iubt..ot..al. January proposal outlays

Current Estimates

January Estimates
1990

1991

1992

1993

1994

1995

1990

1991

1992

303.6
(294.9)
(8.7)
9.6
12.8
3.7
16.2
16.9
27.7
(28.0)
(--0.3)
27.6
5.4

296.3
(286.8)
(9.6)
14.6
14.1
3.2
17.5
14.6
22.7
(20.3)
(2.4)
29.2
8.8

303.3
(292.1)

309.2
(296.9)
(12.3)
19.4
19.4
3.1
18.9
15.6
10.3
(9.6)
(0.7)
30.2
6.5

311.9
(299.0)
(12.9)
18.8
21.4
3.2
18.4
13.5
9.6
(9.5)
(0.1)
30.7
6.1

315.7
(302.3)
(13.4)
18.9
22.9
3.0
18.3
11.8
7.7
(7.8)
(--0.1)
31.3
5.9

318.6
(304.8)
(13.7)
19.7
24.0
2.6
17.8
10.4
6.2
(6.6)
(--0.4 )
31.3
6.2

299.8
(290.2)
(9.6)
15.5
14.2
3.3
17.8
12.5
77.6
(75.7)
(1.9)
29.5
8.3

303.3
(292.2)
(11.0)
18.2
16.6
3.0
17.9
11.2
75.7
(76.0)
(--0.3)
29.9
7.8

309.6
(297.4)
(12.3)
19.1
19.4
3.4
18.3
11.2
53.6
(53.6)
(0.1)
30.3
6.5

36.7
48.4
85.0
136.0
232.5
(5.1)
(227.5)
30.1
9.4
9.1
169.1
(180.5)

37.7
57.8
96.6
146.6
248.5
(3.9)
(244.6)
28.9
10.5
10.6
175.6
(191.2)
(-15.6)

41.0
63.7
98.6
153.7
264.8
(4.7)
(260.1)
30.3
12.6
11.3
173.0
(192.9)
(-19.9)

42.9
69.9
110.1
159.6
280.9

43.5
75.9
121.9
166.3
297.7
(6.0)
(291.7)
33.3
14.2
25.8
157.0
(187.1)
(-30.n

44.1
82.0
135.0
174.6
314.6
(6.4)
(308.2)
32.6
14.3
65.2
147.8
(184.1)
(-36.3)

44.9
88.3
149.1
181.4
331.4
(6.9)
(324.6)
31.7
14.6
113.5
136.1
(178.9)
(---42.8)

38.3
58.2
96.9
148.5
248.7
(3.8)
(244.9)
29.4
10.5
10.6
181.4
(197.2)
(-15.8)

42.1
66.2
99.6
160.5
266.9
(4.7)
(262.2)
30.9
12.8
12.0
193.7
(214.3)
(-20.6)

44.1
74.3
112.4
165.7
284.0
(5.6)
(278.3)
31.8
14.2
13.0
193.5
(219.4)
(-26.0)

(-11.4)
-

-

-

-

-

(1Ll)

18.2
16.6
3.0
18.2
14.9
17.2
(15.5)
(1.7)
29.8
7.8

(fU,)

(275.3)
31.0
13.9
11.9
163.5
(188.1)
(-24.6)

-

-

--0.8
--0.2
-1.1

-0.9
-0.2
-1.1

-1.0
--0.2
-1.2

-1.0
--0.2
-1.2

-1.1
--0.2
-1.3

-

1993

1994

1995

311.9

30.6
6.1

319.6
(306.2)
(13.4)
19.0
22.9
3.2
18.2
10.8
-33.5
(-33.0)
(-0.5)
31.0
5.R

320.4
(306.7)
(13.7)
19.8
24.0
2.7
17.7
9.4
-14.4
(-13.5)
(--0.9)
31.4
5.8

43.9
81.8
124.6
173.4
301.1
(6.0)
(295.1)
32.5
14.4
12.8
190.2
(221.8)
(-31.6)

44.7
89.2
138.3
182.3
317.9
(6.5)
(311.5)
34.7
14.5
12.5
184.4
(221.6)
(-37.2)

45.6
96.6
153.2
188.8
334.9
(6.9)
(328.0)
34.0
14.8
12.2
176.4
(219.8)
(-43.3)

(2~.1)

(12.9)
18.8
21.4
3.4
18.2
11.5
6.3
(6.2)

(.)

-

-

-

--0.8
--0.2
-1.1

0.2
--0.9
--0.2
-<l.9

0.3
-1.0
--0.2
-0.9

0.5
-1.0
-0.2
-0.7

0.8
-1.1
--0.2
--0.5

-29.4

-28.3

-30.1

-30.8

-32.1

-33.9

-35.0

-28.3

-30.0

-30.7

-32.0

-33.7

-34.8

-4.9

-5.6

-6.0

-6.5

-7.1

-7.7

-8.3

-5.6

-5.9

-6.4

-7.0

-7.7

-8.3

-2.9

-2.6

-

-

-3.0
-1.3
-3.3

-3.4
-1.6
-1.5

-3.1
-1.6
-2.3

-3.3
-1.6
--0.1

-3.3
-1.6
-1.3

-2.9

-3.4
-1.3
-3.3

-3.6
-1.6
1.5

-3.3
-1.6
2.3

-3.6
-1.6
-0.1

-3.3
-1.6
1.3

-43.8
(-37.9)
( 5.9)

--43.8
(-37.4)
(-6.4)

--46.2

--46.7

(-39.2)

(-39.0)

--49.4
(--41.1)

-37.2
(-32.4)
(-4.9)
1.142.6

-

-36.5
(-30.9)
(-5.6)
1,197.2

--43.6
(-37.6)
(--6.0)
1,233.3

--43.8

--46.2

--46.6

(-37.4)

(-39.1)
(-7.1)
1.321.8

(-38.9)

(-6.5)
1.271.4

(-7.7)

1.398.0

--49.5
(-41.2)
(-8.3)
1,476.9

-

-

-36.7
(-3L2)
(

5.6)

1.264.3

l,a23,4

1,359.6

( 7.0)
1,355.8

(

7.7)

1,368.2

(-B.3)

] .423.6

6/20 proposals ..............................................
Total, outlays .................................

-

-

-

1,142.6

1,197.2

1,233.3

931.7
210.9

971.5
225.8

997.4
236.0

-

-

-

-

-

1,271,4

1,321.8

1,398.0

1,476.9

1,264.3

-11.7
1,311.7

-19.7
1,339.8

-23.7
1,332.2

-29.7
1,338.5

-31.9
1,391.7

1,026.5
244.9

1,067.1
254.7

1,133.9
264.1

1,203.8
273.1

1,038.8
225.5

1,076.3
235.4

1,093.9
246.0

1,075.7
256,4

1,072,4
266.2

1,116.3
275.4

ADDENDUM
On-budget .....................................................
Orr-budget .....................................................
-

-

*$50 million or less.

o
I

~

-l

---~

-

--

Table 0-16. MID·SESSION REVIEW: JANUARY/JUNE PROPOSED OUTLAYS BY CATEGORY
(I n bill ions of dolla rs)

Actual
1989

1990

1992

1993

1994

]995

309.2
20.3
202.3
622.1
-1.4
-3.8
163.5
-40.7
1,27104

311.9
19.7
207.5
674.7
-1.5
-5.2
157.0
-42.3
1,321.8

315.7
20.2
212.2
751.9
-1.4
-3.4
147.8
-44.9
1,398.0

318.6
20.8
215.7
838.8
-1.4
-4.9
136.1
-46.6
1,476.9

303.6
16.6
169.0
528.6
-7.0
169.1
-37.2
1,142.6

175.6
-36.5
1,]97.2

303.3
19.2
194.4
589.7
-1.6
-5.6
173.0
-39.0
1,233.3

roposals ...............................................
tal, outlays .........................................

1,142.6

1,197.2

],233.3

-

296.3
17.3
184.2
562.5
-2.3

1991

,ationa! discretionary .........................
;tie discretionary ................................
atory ....................................................
sales and prepayments ......................
'ccs and other collections ...................
'tercst ...................................................
undistributed offsetting receipts ......
Ibtotal, .January proposals ................

'>C ••••.•.•••..••..•..•..•••..•..••••.••.••••.••.••...•..•.••

Current Estimates

January Estimates

-

-

1,271.4

._L-.

1,321.8

-

1,398.0

1,476.9

1990
299.8
18.5
185.3
616.7
-0.6
-

181.4
-36.7
1,264.3

1,264.3

1995

1991

1992

1993

1994

303.3
19.2
194.9
659.1
-1.9
·5.5
193.7
-39.3
1,323.4

309.6
20.0
203.6
678.9
-].4
-3.8
193.5
-40.7
1,359.6

311.9
19.8
209.2
673.6
-1.5
-5.1
190.2
-42.3
1,355.8

:n9.6
20.3
214.0
679.7
-1.4
-3.3
184.4
-45.0
1,368.2

1,423.6

-11.7
1,311.7

-19.7
1,339.8

-23.7
1,332.2

-29.7
1,338.5

-:n.9
1,391.7

320.4
20.9
217.4
741.1
-1.4
-4.8
176.4
-46.5

Table D-17. MID-SESSION REVIEW: JANUARY/JUNE PROPOSED BUDGET AUTHORITY BY AGENCY
(In billions of dollars)
Actual
1989

o
I

I-'

c.o

Legislative Branch .......................................
The Judiciary ...............................................
Executive Office of the President ...............
Funds Appropriated to the President ........
Department of Agriculture ..........................
Department of Commerce ...........................
Department of Defense-Military ..............
Department of Defense-Civil ....................
Department of Education ............................
Department of Energy .................................
Department of Health and Human Services,
except Social Security .............................
Department of Health and Human Services,
Social Security .........................................
Department of Housing and Urban Development .....................................................
Department of the Interior .........................
Department of Justice .................................
Department of Labor ...................................
Department of State ....................................
Department of Transportation ....................
Department of the Treasury .......................
Department of Veterans Affairs ..................
Environmental Protection Agency ..............
General Services Administration ................
National Aeronautics and Space Administration ......................................................
Office of Personnel Management.. ..............
Small Business Administration ..................
Other Independent Agencies .......................
On-budget ..............................................
Off-budget .............................................
Allowances
Civilian pay reform ..............................
Employee health benefits reform ........
Reduced Government mail rates .........
Total, allowances ...........................
Undistributed offsetting receipts ................
On-budget ..............................................
Off-budget .............................................
Subtotal, January proposals budget authority ..............................
6/20 proposals ..............................................
Total, budget authority .................
ADDENDUM
On-budget .....................................................
OIT-Budget ....................................................
*$50 million or less.

Current Estimates

January Estimates
1991

1992

1993

1994

2.9
2.5
0.4
13.9
55.9
2.2
311.8
46.7
24.7
18.0

2.2
1.7
0.3
12.4
54.2
3.7
289.0
36.7
24.7
14.3

2.7
2.1
0.4
12.6
55.0
2.5
295.0
38.5
26.0
14.8

2.7
2.3
0.4
24.4
55.9
2.4
299.8
40.5
24.9
16.9

2.8
2.3
0.4
13.3
56.5
2.5
304.2
42.9
24.5
17.6

2.9
2.4
0.4
13.5
57.0
2.4
307.9
45.3
24.9
17.8

2.9
2.5
0.4
14.2
56.9
2.2
311.6
47.6
25.2
18.0

293.5

314.3

213.2

235.0

251.7

275.1

298.8

319.4

399.1

432.4

461.8

302.8

338.7

364.8

395.5

428.6

458.0

22.2
5.7
9.3
32.3
4.7
30.3
258.9
31.4
5.2
0.1

22.2
5.7
9.8
33.0
4.8
30.7
275.9
32.0
5.0
0.1

21.9
5.8
9.8
33.5
4.9
30.7
316.5
32.7
4.4
0.1

22.1
5.7
10.1
33.9
5.1
31.3
363.2
33.5
3.9
0.1

17.9
6.6
8.8
32.1
4.3
30.2
254.4
30.5
5.4
1.8

24.0
5.5
9.0
32.0
5.5
29.3
278.9
31.5
5.4
1.4

22.4
5.7
9.4
33.1
4.7
30.4
293.1
32.3
5.2
0.8

22.3
5.7
9.9
34.8
4.8
30.7
299.6
32.8
5.0
0.4

21.7
5.9
9.8
36.6
4.9
30.8
303.6
33.3
4.4
0.1

22.6
5.8
10.2
38.0
5.1
31.3
305.7
33.9
3.9
0.1

17.6
61.3
0.5
19.6
(17.4)
(2.2)

19.3
64.5
0.5
19.6
(17.9)
(1. 7)

20.3
68.0
0.5
21.5
(19.9)
(l.5)

21.0
70.8
0.6
20.0
(18.6)
(1.4)

12.3
55.6
0.9
22.8
(18.9)
(3.9)

15.2
58.5
0.4
48.2
(46.4)
( 1.8)

17.6
62.0
0.5
51.0
(49.0)
(2.0)

19.3
65.4
0.5
38.5
(36.8)
(1.8)

20.3
68.8
0.6
26.0
(24.5)
(1.6)

21.0
71.6
0.6
22.6
(21.0)
(l.6)

-

-

-

-

-0.8
-0.2
-1.1
-114.6
(-88.0)
(-26.6)

0.2
-0.9
-0.2
-0.9
-125.8
(-93.4)
(-32.4)

0.3
-l.0
-0.2
-0.9
-137.1
(-98.5)
(-38.6)

0.5
-1.0
-0.2
-0.7
-146.6
(-101.8)
(--44.8)

0.8
-1.1
-0.2
-0.5
-158.6
(-106.9)
(-51.6)

1,528.2
-17.0
1,511.2

1,569.2
-19.5
1,549.7

1,621.4
-21.7
1,599.7

1,672.0
-24.0
1,648.1

1,176.8
334.4

1,191.1
358.7

1,214.4
385.3

1,240.1
407.9

1991

1992

1993

1994

2.3
1.5
0.1
11.0
55.7
2.8
290.8
37.2
23.0
11.7

2.2
1.7
0.3
12.4
55.1
3.6
291.4
36.7
24.1
14.3

2.7
2.1
0.4
12.4
55.3
2.5
295.1
38.4
24.6
14.8

2.7
2.3
0.4
12.7
56.2
2.4
300.0
40.1
24.2
16.9

2.7
2.3
0.4
13.1
55.3
2.5
304.3
42.3
24.4
17.6

2.8
2.4
0.4
13.3
53.4
2.4
308.0
44.6
24.5
17.8

196.6

212.3

232.4

249.3

270.7

279.9

306.6

340.4

368.4

14.3
5.5
6.7
29.9
4.1
28.5
232.1
29.9
5.1
0.2

18.4
6.2
8.6
32.5
4.2
30.2
248.5
29.9
5.4
0.1

23.7
5.6
8.9
32.1
5.5
29.3
256.1
30.9
5.4

11.0
51.2
0.4
67.5
(65.9)
(1.6)

12.3
55.6
0.9
21.3
07.2)
(4.1)

15.2
58.2
0.4
17.8
(14.9)
(3.0)

-

-

-

-

-

-

-

-

-89.2
(-72.9)
(-16.3)

-97.3
(-76.1)
(-21.2)

1,309.9

1,337.6

*

-

-

1995

-0.8
-0.2
-1.1
-112.6
(-86.8)
(-25.9)

-0.9
-0.2
-1.1
-122.5
(-91.4)
(-3U)

-1.0
-1.0
-0.2
-0.2
-1.2
-1.2
-133.7
-144.0
(-96.5) (-100.0)
(-37.2)
(-44.0)

-1.1
-0.2
-1.3
-156.8
(-105.6)
(-51.1)

1,396.5

1,451.1

1,522.7

1,718.1

1,620.9

-

-97.8
(-76.4)
(-21.3)
1,341.1

-

1,309.9

1,337.6

1,396.5

1,451.1

1,522.7

1,620.9

1,718.1

1,341.1

1,452.4
-14.9
1,437.5

1,044.6
265.3

1,048.1
289.5

1,079.0
317.5

1,111.6
339.6

1,159.1
363.6

1,231.0
389.9

1,306.0
412.1

1,055.8
285.3

1,123.6
313.9

-

-

-

1995

1990

1990

-

-

-

-

-

Table D-18. MID-SESSION REVIEW: JANUARY/JUNE PROPOSED BUDGET AUTHORITY BY FUNCTION
(In billions of dollars)
Actual
1989
-'

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

tary .................................

.........................................
irs .....................................
pace, and technology ......
. -•.....................•...••.........

and envi ronment ...........
........................................

using crcdil.. ...................
....... - .......... - .............

....................... , .................
Tr

.........................................
~gional development ......
,. employment, and social

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

tJ

I
M
I
S

I

t-.:>

<=>

V,
A
G
N

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

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

1991

1992

1993

1994

1995

1990

1991

1992

1993

1994

1995

299.6
(290.8)
(8.7)
17.3
12.9
4.1
17.0
21.3
61.9
(60.3)
(1.6)
29.3
7.9

301.6
(291.4)
( 10.3)
18.6
14.6
n.6
17.0

312.5
(300.0)
(12.6)
19.6
20.8
4.1
18.0
21.1
13.9
(11.7)
(2.2)
31.3
6.2

317.5
(304.3)
(13.1)
20.1
22.7
4.6
17.5
18.9
13.8
(12.1)
(1. 7)
31.7
6.2

321.6
(308.0)
(13.6)
20.5

31.2
9.0

306.9
(295.1)
(I 1.7)
20.0
17.9
3.3
17.6
20.1
14.3
(11.3)
(3.0)
30.3
7.0

4.4
17.2
14.9
15.5
(13.9)
(l.5)
31.7
6.1

325.7
(311.8)
(13.9)
21.6
25.0
4.2
16.4
15.1
14.4
(13.0)
(1.4)
32.4
6.1

299.3
(289.0)
(10.3)
19.0
14.6
4.9
17.7
13.9
21.8
(17.9)
(3.9)
31.2
9.8

306.6
(295.0)
(11. 7)
20.2
17.8
3.6
17.4
17.1
44.9
(43.1)
(1.8)
30.3
7.0

312.4
(299.8)
(12.6)
31.3
20.8
4.1
17.3
17.3
47.3
(45.3)
(2.0)
31.4
6.1

317.3
(304.2)
(13.1)
20.3
22.7
4.5
17.6
17.1
33.4
(:11.7)
(l.8)
31.7
6.1

:iZI.5
(307.9)
(13.6)
20.8
24.1
4.2
17.2
14.3
22.0
(20.4)
(1.6)
;-11.8
6.1

325.5
(311.6)
0:-1·9)
21.9
25.0
3.9
16.5
14.1
16.7
(15.1 )
(1.6)
32.4
6.0

38.8
51.7
107.3
173.4
285.0

39.6
60.3
116.9
183.2
310.5
(3.9)
(306.6)
30.0
12.2
10.5
175.6
(191.2)
(-15.6)

42.0
64.8
125.2
198.9
345.1
(4.7)
(340.4)
31.0
12.6
11.4
173.0
(192.9)
(-19.9)

42.9
70.9
136.4
204.4
374.0
(5.6)
(368.4)
31.5
13.2
11.6
163.5
(188.1)
(-24.6)

43.7
76.8
150.8
211.9
405.1
(6.0)
(399.1)
32.1
14.2
25.7
157.0
(187.1)
(-30.1)

44.4
83.0
164.9
221.1
438.8
(6.4)
(432.4)
32.8
14.4
65.3
147.8
( 184.1)
(-36.3)

45.0
89.6
178.8
227.7
468.7
(6.9)
(461.8)
33.6
14.9
113.7
136.1
(178.9)
(-42.8)

40.4
61.1
116.2
184.9
306.6
(3.8)
(302.8)
30.6
12.4
12.0
181.4
(197.2)
(-15.8)

43.3
67.3
122.7
204.7
343.4
(4.7)
(338.7)
31.7
12.7
12.9
193.7
(214.3)
(-20.6)

43.7
75.2
133.0
210.8
370.5
(5.6)
(364.8)
32.4
13.4
12.4
193.5
(219.4)
(-26.0)

44.0
82.7
147.6
220.2
401.6
(6.0)
(395.5)
::12.9
14.4
12.0
190.2
(221.8)
(-31.6)

45.0
90.3
161.1
231.2
435.0
(6.5)
(428.6)
33.4
14.7
11.8
184.4
(221.6)
(-37.2)

45.9
97.9
173.9

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

(5.1)

(279.9)
30.0
10.0
10.6
169.1
(180.5)
(-11.4)

........................................
............... , .... , ................
........................................
,.,

A
~form ...............................

lh benefits reform .........
'nment mail rates .........
wanres ............................

u

1990

........................................
lnd services ....................
justice .............................
nt ....................................

Current Estimates

Jan UHry Estimates

-

-

lR.O

19.6
(15.5)
(4.1)

-

-

-

-

-

24.1

-

-

-0.8
-0.2
-1.1

-0.9
-0.2
-1.1

-1.0
-0.2
-1.2

-1.0
-0.2
-1.2

-1.1
-0.2
-1.3

-

-

2;~9.7

464.9

(6.9)
(458.0)
34.0
15.1
12.0
176.4
(219.8)
(-43.3)

-0.8
-0.2
-1.1

0.2
-0.9
-0.2
-0.9

0.3
-1.0
-0.2
-0.9

0.5
-1.0
-0.2
-0.7

0.8
-1.1
-0.2
-0.5

~tting

receipts:
-e, employee retirement

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

-29.4

-28.3

-30.1

-30.8

-32.1

-33.9

-35.0

-28.3

-30.0

-30.7

-32.0

-33.7

-34.8

-4.9

-5.6

-6.0

-6.5

-7.1

-7.7

-8.3

-5.6

-5.9

-6.4

-7.0

-7.7

-8.3

If .....................................

-2.9

-2.6

-

-3.0
-1.3
-3.3

-3.4
-1.6
-1.5

-3.1
-1.6
-2.3

-3.3
-1.6
-0.1

-3.3
-1.6
-1.3

-2.9

lsscts ..............................
buted oITsctting receipts
istributed offsetting

-3.4
-1.3
-3.3

-3.6
-1.6
1.5

-3.3
-1.6
2.3

-3.6
-1.6

-3.3
-1.6
1.3

-43.6
(-37.6)

-43.8
(-37.4)

(~.O)

(~.5)

-46.7
(-39.0)
( 7.7)

'e, employee retirement

........................................
llties on the Outer Con-

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

Idget ................................
.dget ...............................

-

-37.2
(-32.4)
(-4.9)

-

-36.5
(-30.9)
(-5.6)

-46.2
(-39.1)
( 7.1)

-46.6
(-38.9)
( 7.7)

-49.5
(-41.2)
(-8.3)

-

-36.7
(-31.2)
( 5.6)

-43.8
(-37.9)
( 5.9)

-43.8

-46.2

(-37.4)

(-39.2)

(~.4)

( 7.0)

January proposal budget
Ly ........ " .........................

1,309.9

1,337.6

1,396.5

1,451.1

1,522.7

1,620.9

1,718.1

1.341.1

1,452.4

1,528.2

1,569.2

-{).1

1,621.4

-49.4
(-41.1)
(-8.3)

2.0

-

-

1,309.9

1,337.6

1,396.5

ADDENDUM
On-budget .....................................................
OfT-budget .....................................................

1,044.6
265.3

1,048.1
289.5

1,079.0
317.5
----

·$50 million or less

~

J,:;
~

-

-

6/20 proposals ..............................................
Total, budget authority .................

-

-

-

-

1,451.1

1,522.7

1,620.9

1,718.1

1,341.1

-14.9
1,437.5

-17.0
1,511.2

-19.5
1,549.7

1,111.6
339.6

1,159.1
363.6

1,231.0
389.9

1,306.0
412.1

1,055.8
285.3

1,123.6
313.9

1,176.8
334.4

1,191.1
358.7

---

--

-

--

-

-21.7
1,599.7

-24.0
1,648.1

1,214.4
385.3

1,240.1
407.9

--

----

Table D-19. MID-SESSION REVIEW: JANUARY/JUNE PROPOSED NEW DIRECT LOAN OBLIGATIONS BY AGENCY
(In billions of dollars)

Funds Appropriated to the President. ........
Department of Agriculture ..........................
Department of Education ............................
Department of Housing and Urban Development ............................................. ····· ........
Department of Interior ................................
Department of Labor ...................................
Department of State ....................................
Department of Transportation ....................
Department of Veterans Affairs ..................
Environmental Protection Agency ..............
Small Business Administration ..................
Other Independent Agencies:
Export-Import Bank .............................
National Credit Union Administration
Tennessee Valley Authority ..................
Total, new direct loan obligations

l'

tv

Current Estimates

January Estimates

Actual
1989

1992

1991

1990

0.4
12.7

0.4
13.3

..

.

..

10.8

..

10.5

0.5

..

0.6

0.4

0.5

.

...

.

..
..

..

..

.

..

..

..

.

9.3

.

U.8

0.5

0.5

.
.
.

0.6

•,.

.

..
.
..
..

0.5

1.0

..

1.0

..

..

0.4

..
..

..

0.6

0.5
0.3

0.3

1.5

0.6
0.1
0.4
12.1

0.6
0.1
0.4
11.7

0.6
0.2
0.3
16.6

.

•

0.3

0.6
0.2
0.3
18.4

0.5
0.3
0.3
13.4

0.5
0.1
0.3
13.0

0.5
0.1
0.4
12.4

0.7
0.2
0.3
16.2

9.6

..
..
..
.

..

1.9

0.2

.

0.5

0.5
0.3

0.9

.
9.3
.

..

0.4

-

..
-

1993

1992

1991

..
..
..
.

0.7
0.3

1.1

•

..
10.0
.

1990

1995

1994

1993

.
9.3
..
0.5
..

.

9.3

..

.
9.3
.

..

.
.
.

1.0

0.9

..

0.5

.

..

0.5

..
..

.

1995

1994

.

.

8.9

.

0.5

•

..

0.8,

0.3

1.0
0.3

0.3

0.3

0.3

0.5
0.3
0.3
12.2

0.5
0.1
0.3
12.1

0.5
0.1
0.4
12.2

0.6
0.1
0.4
12.2

0.6
0.1
0.4
11.7

-

-

-

--

·$50 million or less.

~

Table D-20. MID-SESSION REVIEW: JANUARY/JUNE PROPOSED NEW DffiECT LOAN OBLIGATIONS BY FUNCTION
(In billions of dollars)
Actual
1989
(In billions of dollars) ......................................
International affairs .........................................
Energy ...............................................................
Natural resources and environment ...............
Agriculture ........................................................
Commerce and housing credit .........................
Transportation ..................................................
Community and regional development ..........
Education, training, employment, and social
services .........................................................
Income security .......................................... _.....
Veterans benefits and services ........................
Thtal, new dir<>ct loan obligations ....
$50 million or less.

1990

1.9

1.8

1.2
0.1
8.2
3.0

2.1
0.1
7.8
3.0

0.8

2.6

...

..

•

1.1
16.2

Current Estimates

January Estimates

.

•

1991

1992

1993

1994

6.9
1.7

6.6
2.0

6.7
1.8

6.8

.

1.B

6.9
1.7

6.6
1.7

0.7

0.7

2.2

O.B

0.8

O.B

0.7

0.7

•

•

•,.

•,.

..

....

..

.

.

0.5
12.1

0.5

1.0

LO

16.6

1.0
12.2

1.0

11.7

12.1

12.2

0.9
12.2

O.B
11.7

7.4
1.9

7.2
1.8

0.8

O.B

O.B

..,.

•
•

•

0.5
12.4

0.9

0.7

18.4

13.4

0.6
13.0

1.5
0.4

7.8
1.9

..

1995

1.4
0.4

7.9
2.1

..

1994

1.4
0.5

1.4
0.4

..
..,.

1993

1.3
0.4

1.4
0.5

.

1992

1991

1.3
0.5

1.3
0.4

.

1990
1.8
1.3
0.1
7.0
3.0

1.3
0.5

..

1995

..

1.5
0.4

..

..

,.

..

..

.

..
.

,.

.

,.

Table D-21. MID-SESSION REVIEW: JANUARY/JUNE PROPOSED NEW GUARANTEED LOAN COMMITMENTS
BY AGENCY
(In billions of dollars)
Actual
1989
Funds Appropriated to the President ...........
Department of Agriculture .............................
Department of Commerce ..............................
Department of Education ...............................
Department of Health and Human Services
Department of Housing and Urban Development ............................................................
Department of Interior ...................................
Department of the Treasury ..........................
Veterans Affairs ..............................................
Small Business Administration .....................
Other Independent Agencies:
Export-Import Bank ................................
Federal Home Loan Bank Board ...........
National Credit Union Administration ..
Total, new guarantee commitments

t::I

~

c,..,

January Estimates
1990

1991

1992

1993

Current Estimates
1994

1995

5.4
5.5
0.1
11.9
0.3

2.1
9.3
0.1
12.7
0.3

0.4
10.3

0.4
10.4

-

-

-

12.6
0.2

13.4
0.1

14.2
0.1

14.9

15.5

54.5
0.1
0.4
14.4
3.7

63.7

75.0

67.0

67.0

0.6
15.0
4.5

0.5
15.8
4.4

0.7
14.5
4.6

-

5.6
3.5

10.2

10.6

11.0

-

-

-

105.4

118.6

-

•

•

-

•

•

•

•

•

1990

-

-

-

-

14.2
0.1

14.9

15.6

63.8

75.0

74.0

79.7

82.5

85.5

0.5
17.8
4.4

0.7
16.6
4.6

-

-

-

14.7
5.0

0.5
16.5
4.5

15.3
4.7

14.4
4.8

14.8
5.0

12.2

10.2

10.6

11.0

11.4

11.8

12.2

-

-

-

-

-

-

14.3
4.7

14.5
4.8

11.4

11.8

-

•

-

•

0.4
10.8

13.5
0.1

67.0

•

0.4
10.7

1995

-

67.0

•

•

1994

12.6
0.2

0.4
10.8

-

•

•

•

•

0.4
10.7

1993
0.4
10.6

•

0.4
10.7

1992
0.4
10.4

2.1
7.2
0.1
12.6
0.3

0.4
10.6

1991

•

•

•

-

•

-

•

•

•

•

•

•

•

•

129.8

122.2

122.7

124.2

125.7

117.9

132.2

131.3

136.4

139.6

144.3

80.0

79.8

82.6

85.1

87.5

81.7

85.0

85.0

90.0

90.0

95.0

ADDENDUM

Secondary guaranteed loans ..........................
--

-

·$50 million or less.

-------

55.1

81.7
-

L

Table D-22. MID-SESSION REVIEW: JANUARY/JUNE PROPOSED NEW GUARANTEED LOAN COMMITMENTS
BY FUNCTION
(In billions of dollars)
Actual
1989
International affairs .....................................
Energy ...........................................................
Agriculture ....................................................
Commerce and housing crediL ...................
Community and regional development ......
Education. training. employment, and social
services .....................................................
Health ...........................................................
Veterans benefits and services ....................
General government ....................................
Total. new guarantee oorrunitments

Current Estimates

January Estimates
1990

1991

1992

1993

11.0
5.4
61.7
0.3

12.3
0.5
8.5
68.2
0.5

11.0
1.1
8.3
80.0
0.4

11.4
1.2
8.3
72.2
0.4

11.9
1.2
8.3
72.4
0.4

11.9
0.3
14.4
0.4
105.4

12.7
0.3
15.0
0.6
118.6

12.6
0.2
15.8
0.5
129.8

13.4
0.1
14.5
0.7
122.2

14.2
0.1
14.3
122.7

55.1

81.7

80.0

79.8

82.6

1994

1995

1990

1991

1993

1992

1995

1994

12.3
0.2
6.8
68.3
0.5

11.0
1.5
8.3
80.0
0.4

11.5
1.2
8.3
79.2
0.4

11.9
1.2
8.3
85.1
0.4

12.3
1.3
B.3
88.1
0.4

12.7
1.3
8.3
91.3
0.5

13.5
0.1
16.6
0.7
131.3

14.2
0.1
15.3

15.6

14.4

14.8

124.2

12.6
0.2
17.8
0.5
132.2

14.9

14.7
125.7

12.6
0.3
16.5
0.5
117.9

85.1

87.5

81.7

85.0

85.0

12.3

12.6

1.3

1.3

8.3
72.6
0.4

8.3
72.8
0.5

14.9

15.5

14.5

•

-

•

-

•

-

•

-

136.4

139.6

144.3

90.0

90.0

95.0

ADDENDUM
Secondary guaranteed loans .......................

oI

tV

.p..

*$50 million or less.

--

-

Table D-23. MID-SESSION REVIEW: FEDERAL GOVERNMENT FINANCING AND DEBT
(In billions of dollars)
Estimates

Actual
1989
Financing:
Surplus or deficit (-) ......................................................................
On-budget ................................................................................
Off-budget ................................................................................
Means of financing other than borrowing from the public:
Decrease or increase (-) in Treasury operating cash balance
Increase or decrease (-) in:
Checks outstanding, etc. l ................................................
Deposit fund balances ......................................................
Seigniorage on coins ........................................................
Proceeds from the sale of loan assets with recourse Z ..
Total, means of financing other than borrowing from
the public ......................................................................
Total, requirements for borrowing from the public .......
Reclassification of debt 3 ................................................................
Change in debt held by the public • .............................................

c
~

~
/I)

11

~

rT

"0
11

.....
;:J
.....

rT
;:J
0.0

0

Hl
Hl

.....

0

/I)

.....

i§
0
N

--..J

?CD

l.TI

CD

~
W

t:l
I

t-.:>

c.n

Debt Outstanding, End of Year:
Gross Federal debt:
Debt issued by Treasury • .......................................................
Debt issued by other agencies ................................................
Total, gross Federal debt • ...............................................
Held by:
Government accounts ..............................................................
The public' ..............................................................................
Debt Subject to Statutory Limit, End of Year:
Debt issued by Treasury' ..............................................................
Deduct {-}: Treasury debt not subject to limit.. ...........................
Agency debt subject to liIllit ..........................................................
Unamortized discount or preIllium (-) on Treasury notes and
bonds ............................................................................................
Total, debt subject to statutory limit 6 ...................................

--

-152.0
(-204.7)
(52.8)

1992

1991

1990
-220.1
(-276.0)
(56.0)

-176.3
(-253.1)
(76.8)

1993

-133.9
(-220.3)
(86.4)

1994

-49.2
(-149.7)
(100.5)

1995

31.5
(-86.1)
(117.6)

55.4
(-75.5)
(130.9)

3.4

11.0

-

-

-

-

-

8.1
0.7
0.6

0.1
-1.2
0.6

2.4
-0.7
0.6

-

-

-

-

-1.2
0.6

-

-

-

*
12.9
-139.1

-

10.5
-209.6

-

2.3
-174.1

-

-

-0.6
-134.5

-

-

-

0.6

0.5

0.5

-

-

-

0.6
-48.7

0.5
32.0

0.5
55.9

-

-

139.1

209.6

174.1

134.5

-2.4
51.1

-32.0

-55.9

2,842.0
24.2
2,866.2

3,174.9
31.2
3,206.1

3,490.8
30.7
3,521.5

3,787.9
30.7
3,818.6

4,025.3
33.1
4,058.5

4,199.5
31.9
4,231.4

4,366.7
30.6
4,397.2

676.9
2,189.3

807.2
2,399.0

948.4
2,573.0

1,111.1
2,707.5

1,299.9
2,758.6

1,504.8
2,726.6

1,726.6
2,670.7

2,842.0
-15.6
0.3

3,174.9
-15.6
0.5

3,490.8
-15.6
0.5

3,787.9
-15.6
0.5

4,025.3
-15.6
0.5

4,199.5
-15.6
0.5

4,366.7
-15.6
0.5

3.1
2,829.8

2.9
3,162.7

2.9
3,478.6

2.9
3,775.7

2.9
4,013.1

2.9
4,187.3

2.9
4,354.5

-

*$50 million or less.
I Besides checks outstanding, includes accrued interest payable on Treasury debt, miscellaneous liability accounts, allocations of special drawing rights, and, as an offset,
cash and monetary assets other than the Treasury operating cash balance, Illiscellaneous asset accounts, and profit from the sale of gold.
2 Proceeds from the sale of vendee loans with recourse are required by law are to be classified as offsetting collections rather than means of financing.
3 The Farm Credit System Financial Assistance Corporation is estimated to be reclassified from a Government-sponsored enterprise to a Federal agency as of October
1, 1992, and its debt is accordingly reclassified as Federal agency debt.
• Treasury securities held by the public are measured at accrual value (i.e., sales price plus amortized discount or less amortized premiums).
6 Consists primarily of Federal Financing Bank debt.
6 The statutory debt limit is $3,122.7 billion.

TREASURY NEWS
Wa.hlnl,ton,D~C •

apartment of the Treasury •

• Telellhone 51'-204'

CONTACT: Office of Financing

FOR IMMEDIATE RELEASE
July 16, 1990

202/376-4350

RESULTS OF TREASURytS WEEKLY BILL AUCTIONS
Tenders for $9,018 million of 13-week bills and for $9,021 million
of 26-week bills, both to be issued on July 19, 1990,
were accepted today.
RANGE OF ACCEPTED
COMPETITIVE BIDS:

Low
High
Average
~/

13-week bills
October 18 1 1990
Discount Investment
Rate
Rate 1/
Price

matuI'in~

7.59%~/

7.63%
7.62%

7.85%
7.89%
7.88%

98.081
98.071
98.074

26-week bills
maturing January 17 I 1991
Discount Investment
Price
Rate 11
Rate
7.51%
7.53%
7.52%

7.92%
7.9LI%
7.93~~

96.203
96.193
96.198

Excepting $900,000 at lower yields.

Tenders at the high discount rate for the 13-week bills were allotted 18%.
Tenders at the high discount rate for the 26-week bills were allotted 41%.

Location
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
TOTALS
~
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS

TENDERS RECEIVED AND ACCEPTED
(In Thousands)
Received
Received
AcceEted

AcceEted
51,120
7,673,895
25,260
55,950
56,250
38,235
256,040
24,520
20,575
59,950
29,210
235,915
493,695

39,055
S
22,044,210
35,360
49,245
51,050
41,910
2,555,635
38,475
17,230
43,250
35,420
786,210
537,740

39,045
S
7,117,710
35,360
49,245
51,050
41,910
735,135
19,375
17,230
43,250
26,320
304,210
537,740

5] ,120
S
24,493,435
25,260
55,950
56,250
42,870
1,802,440
30,880
20,575
59,950
37,160
615,415
493,695

$

$26,274,790

$9,017,580

$27,785,000

$9,020,615

$22,678,645
1,460,770
$24,139,415

$5,421,435
1,460,770
$6,882,205

$23,856,750
1,375,665
$25,232,415

$5,092,365
1,375,665
$6,468,030

2,028,360

2,028,360

2,150,000

2,150,000

107,015

107,015

402,585

402!585

$26,274,790

$9,017 ,580

$27,785,000

$9,020,615

An additional $140,985 thousand of I3-week bills and an additional $512,915
thousand of 26-week bills will be issued to foreign official institutions for
new cash.

1/

Equivalent coupon-issue yield.

NB-875

OVERSIGHT BOARD
Resolution Trust Corporation

FOR IMMEDIATE RELEASE

July 17, 1990
OB 90-43

Contact:

Diane Casey
(202) 786-9672

OVERSIGHT BOARD OPEN MEETING RESCHEDULED

The Oversight Soard meeting scheduled for Wednesday, July 18,
1990 at 2:30 p.m. has been rescheduled to begin at 3:45 p.m.

The meeting I open to all members of the public and press,
will be in the General Services Administration aUditorium at 18th
and F streets, N.W., Washington, D.C.

TREASURY NEWS -~.

Department of the Treasury • Walilinaton, D.C. • Telephone 5GI-204 ~

FOR RELEASE AT 4:00 P.M.

CONTACT:Office of Financing
202/376-4350

July 17, 1990
TREASURY'S WEEKLY BILL OFFERING
The Department of the Treasury, by this public notice, invites
tenders for two series of Treasury bills totaling approximately
S18,000 million, to be issued July 26, 1990.
This offering
will provide about $2,100 million of new cash for the Treasury, as
the maturing bills are outstanding in the amount of $15,898 million.
Tenders will be received at Federal Reserve Banks and Branches and at
the Bureau of the Public Debt, Washington, D. C. 20239, prior to 1:00
p.m., Eastern Daylight Saving time, Monday, July 23, 1990.
The two series offered are as follows:
91-day bills (to maturity date) for approximately $9,000
million, representing an additional amount of bills dated
October 26, 1989,
and to mature October 25, 1990 (CUSIP No.
912794 UR 3), currently outstanding in the amount of S18,008 million,
the additional and original bills to be freely interchangeable.
182-day bills for approximately S9,000 million, to be dated
July 26, 1990,
and to mature January 24, 1991 (CUSIP No.
912794 VS 0).
The bills will be issued on a discount basis under competitive
and noncompetitive bidding, and at maturity their par amount will
be payable without interest. Both series of bills will be issued
entirely in book-entry form in a minimum amount of SlO,OOO and in
any higher $5,000 multiple, on the records either of the Federal
Reserve Banks and Branches, or of the Department of the Treasury.
The bills will be· issued for cash and in exchange for Treasury
bills maturing July 26, 1990.
Tenders from Federal Reserve
Banks for their own account and as agents for foreign and international monetary authorities will be accepted at the weighted
average bank discount rates of accepted competitive tenders. Additional amounts of the bills may be issued to Federal Reserve Banks,
as agents for foreign and international monetary authorities, to
the extent that the aggregate amount of tenders for such accounts
exceeds the aggregate amount of maturing bills held by them. Federal
Reserve Banks currently hold Sl,085 million as agents for foreign
and international monetary authorities, and'$3,352 million for their
own account. Tenders for bills to be maintained on the book-entry
records of the Department of the Treasury should be submitted on Form
PD 5176-1 (for 13-week series) or Form PD 5176-2 (for 26-week series).

NB-876

TREASURY'S 13-, 26-, AND 52-WEEK BILL OFFERINGS, Page 2
Each tender must state the par amount of bills bid for,
which must be a minimum of $10,000. Tenders over $10,000 must
be in multiples of $5,000. competitive ~enders must als~ sh~w
the yield desired, expressed on a bank dlscount rate basls wlth
two decimals e.g., 7.15%. Fractions may not be used. A single
bidder, as d~fined in Treasury's single bidder guidelines, shall
not submit noncompetitive tenders totaling more than $1,000,000.
Banking institutions and dealers who make primary
markets in Government securities and report daily to the Federal
Reserve Bank of New York their positions in and borrowings on
such securities may submit tenders for account of customers, if
the names of the customers and the amount for each customer are
furnished. Others are only permitted to submit tenders for their
own account. Each tender must state the amount of any net long
position in the bills being offered if such position is in excess
of $200 million. This information should reflect positions held
as of one-half hour prior to the closing time for receipt of
tenders on the day of the auction. such positions would include
bills acquired through "when issued" trading, and futures and
forward transactions as well as holdings of outstanding bills
with the same maturity date as the new offering, e.g., bills
with three months to maturity previously offered as six-month
bills. Dealers, who make primary markets in Government securities and report daily to the Federal Reserve Bank of New York
their positions in and borrowings on such securities, when submitting tenders for customers, must submit a separate tender for
each customer whose net long position in the bill being offered
exceeds $200 million.
A noncompetitive bidder may not have entered into an
agreement, nor make an agreement to purchase or sell or otherwise dispose of any noncompetitive awards of this issue being
auctioned prior to the designated closing time for receipt of
tenders.
Payment for the full par amount of the bills applied for
must accompany all tenders submitted for bills to be maintained
on the book-entry records of the Department of the Treasury.
A,cash adjustment will be made on all accepted tenders for the
dlfference between the par payment submitted and the actual
issue price as determined in the auction.
No deposit ~eed accompany
~nd,trust companles,a~d from r

tenders from incorporated banks
7sponsible and recognized dealers
ln lnvestment securltles for bllls to be maintained on the bookentry records of Federal Reserve Banks and,Branches.
8/89

TREASURY'S 13-, 26-, AND 52-WEEK BILL OFFERINGS, Page 3
Public announcement will be made by the Department of the
Treasury of the amount and yield range of accepted bids. Competitive bidders will be advised of the acceptance or rejection
of their tenders. The Secretary of the Treasury expressly
reserves the right to accept or reject any or all tenders, in
whole or in part, and the Secretary's action shall be final.
Subject to these reservations, noncompetitive tenders for each
issue for $1,000,000 or less without stated yield from anyone
bidder will be accepted in full at the weighted average bank
discount rate (in two decimals) of accepted competitive bids
for the respective issues. The calculation of purchase prices
for accepted bids will be carried to three decimal places on the
basis of price per hundred, e.g., 99.923, and the determinations
of the Secretary of the Treasury shall be final.
Settlement for accepted tenders for bills to be maintained
on the book-entry records of Federal Reserve Banks and Branches
must be made or completed at the Federal Reserve Bank or Branch
on the issue date, in cash or other immediately-available funds
or in Treasury bills maturing on that date. Cash adjustments
will be made for differences between the par value of the
maturing bills accepted in exchange and the issue price of the
new bills.
If a bill is purchased at issue, and is held to maturity,
the amount of discount is reportable as ordinary income on the
Federal income tax return of the owner for the year in which
the bill matures. Accrual-basis taxpayers, banks, and other
persons designated in section 1281 of the Internal Revenue Code
must include in income the portion of the discount for the period
during the taxable year such holder held the bill. If the bill
is sold or otherwise disposed of before maturity, any gain in
excess of the basis is treated as ordinary income.
Department of the Treasury Circulars, Public Debt Series Nos. 26-76, 27-76, and 2-86, as applicable, Treasury's single
bidder guidelines, and this notice prescribe the terms of these
Treasury bills and govern the conditions of their issue. Copies
of the circulars, guidelines, and tender forms may be obtained
from any Federal Reserve Bank or Branch, or from the Bureau of
the Public Debt.
8/89

TREASURY NEWS

.lIartment of the Treasury • Washlngcon, D.C•• TeJelihone 588-2041

TEXT AS PREPARED
FOR RELEASE UPON DELIVERY
EXPECTED AT 10:30 A.M.
JULY 18, 1990
STATEMENT BY
THE HONORABLE DAVID c. MULFORD
UNDER SECRETARY OF THE TREASURY FOR INTERNATIONAL AFFAIRS
BEFORE THE SUBCOMMITTEES ON THE WESTERN HEMISPHERE,
HUMAN RIGHTS AND INTERNATIONAL ORGANIZATIONS,
AND INTERNATIONAL ECONOMIC POLICY AND TRADE
COMMITTEE ON FOREIGN AFFAIRS
u.S. HOUSE~OF REPRESENTATIVES

Mr. Chairman and Members of the Subcommittees:
I want to thank you for giving me the opportunity today to
discuss with you President Bush's new "Enterprise for the
Americas" initiative.
The President's announcement on June 27 followed a three
month review led by Secretary Brady for the Economic Policy
Council of U.s. economic policy toward Latin America and the
Caribbean. This review concluded that decisive action was
necessary to build a stronger and more comprehensive economic
partnership with our neighbors -- in order to support the
process of democratic change and growing economic realism in
many countries.
The President's "Enterprise for the Americas" initiative
calls for action on trade, investment, debt, and the environment.
Through a broad-based trade program, the initiative defines the
vision and sets out the challenge for movement toward a broad
system of free and fair trade within the hemisphere. Through a
range of investment-related measures, the initiative will also
promote capital flows, reduce debt burdens, and improve the
environment. This initiative will be in addition to existing
programs for the region.
A Broad Program to Expand Trade
Barriers to trade represent a serious obstacle to growth.
Trade within our hemisphere has lagged ~he pace of growth in
world trade during the 1980's. Limited trade opportunities have
constrained the growth of the hemisphere's most competitive
industries and the spawning of new companies, products, and
services. To achieve broader economic growth in all our
economies, we must expand the potential for trade.

NB-877

2

The successful completion of the Uruguay Round is the most
effective means of promoting long-term trade growth in Latin
America and the Caribbean and advancing the region's integration
into the global trading system. The negotiation of reciprocal
reductions in trade barriers, stronger trade rules, and expansion
of these rules into currently ungoverned areas can provide
important benefits to all c~untri7s. In addition~ many.co~ntries
of the region have an especlally lmportant stake In achlevlng a
meaningful agreement on agriculture.
Ambassador Hills and the Administration as a whole have been
working closely with Latin American and Caribbean countries
throughout the Uruguay Round talks. As part of the President's
new initiative, we will now be taking special steps to address
the needs of our neighbors. In particular, we will analyze U.S.
trade flows to identify products of special interest to Latin
American and Caribbean countries and will initiate offers to cut
these tariffs without waiting for these countries to make
requests.
Looking beyond the conclusion of the Uruguay Round, the
"Enterprise for the Americas" initiative envisions a hemispherewide open trade system that links all of the Americas -- North,
Central, South, and the Caribbean. To move toward this long-tern
goal, the initiative provides for the negotiation of free trade
agreements with other markets in Latin America and the Caribbean
-- particularly with groups of countries that have associated for
the purposes of trade liberalization. As we have seen in the
case of Canada, these agreements can offer significant and
lasting benefits for both sides.
These free trade agreements should be comprehensive -providing for the free flow of goods, services, and investment
between participants. They should also ensure the protection of
intellectual property rights and pro~ide for the fair and
expeditious settlement of disputes. The countries involved must
demonstrate a commitment to economic reform, including trade and
investment liberalization and sound macroeconomic policies.
In addition, the United states is willing to enter into
framework agreements, like those already concluded with Mexico
a~d B~li~i~.
Such agr 7ements give us the opportunity to negotiate
wlth lndlvldual countrles the step-by-step elimination of
specific trade barriers and problems. They can also serve to
set out general principles of trade relations between countries,
to 7s~ablish a broad mechanism for discussing problems, and to
facllltate approaches to sectoral issues.

.By

opening their borders to trade , the nations of the
can all boost economic activity -- creating more jobs,
hlgher lncomes, and new opportunities to expand growth. Each of
the steps I have discussed -- a successfully completed Uruguay
Rou~d, the negotiation of bilateral framework agreements, and the
achlevement of Free Trade Agreements, beginning with Mexico -~erlca~

3

will help move us toward a long-term vision of a truly open
hemispheric trading system.
Mexican-u.S. Free Trade Agreement
A Free Trade Agreement (FTA) between the united States and
Mexico would be a giant step forward in the process of eliminating
barriers to trade and investment in the Hemisphere. In accordance
with the June 11 statement by Presidents Bush and Salinas, the
Administration is now actively engaged in the consultations and
preparatory work needed to initiate talks. Immediately following
the announcement, USTR began coordinating inter-agency preparation
of profiles of key FTA subjects and consulting with Congress and
the private sector.
An FTA with Mexico would build on the close trade and
investment links between our countries and the excellent progress
Mexico has made in liberalizing~its trade regime. Mexico is not
only our third largest trading partner, it is also one of our
fastest growing export markets. Our exports to Mexico totalled
$25 billion in 1989, after having grown by an average of 18
percent annually from 1983 to 1989. U.S. imports from Mexico
grew more slowly, averaging 8 percent annually.
Mexico has demonstrated its commitment to open markets, not
just in rhetoric but by action. Its tariff and nontariff
barriers have been slashed since 1985.
•

Mexico applies no tariff higher than 20 percent, an
achievement that few industrial countries can match.
maximum tariff in 1985 was 100 percent.

The

•

Its average tariff is about 10 percent, down from an average
of 25 percent in 1985.

•

Only 7 percent of u.S. exports to Mexico face the nontariff
barrier of import licensing requirements, compared to 100
percent in 1983.

We have an historic opportunity to make these reforms permanent,
remove remaining barriers to trade in goods, and guarantee that
Mexican markets are open to U.S. exporters.
FTA negotiations also provide an opportunity to address
investment issues of interest to U.S. companies. Mexico has made
important strides in liberalizing its investment regime, an~ we
intend to build on this progress to ensure that U.S. companles
can invest in the Mexican market.
The talks can serve as an effective' means to address
barriers to services trade and investment in key sectors like
financial services. Mexico has recently announced legislation
to privatize its banking system. We need to ensure that the

4

doors are opened to U.S. banks and securities firms as well as
to private Mexican firms.
Let me emphasize that the long-term benefits of an FTA are
not just in the form of increased U.S. exports
returns,on
foreign investment. Equally important, an ~TA WIll contrIbute
substantially to Mexican growth and to the Increased wages and
lower capital costs which acco~pany ~uch growth. ~n the long
term, increased income levels In MeXICO ~re.essentlal to
eliminating bilateral trade and other frIctIons.

0:

Increasing Investment in Latin America and the Caribbean
In a world short of resources, financing economic growth
depends on unlocking the potential for ~omestic and foreign
investment in Latin America and the CarIbbean.
The competition today for capital is particularly fierce.
More and more countries are building market economies which will
appeal to both domestic and foreign investors. To increase the
flow of investment resources from home and abroad, Latin American
and Caribbean countries must turn around the conditions that
have, over the last decade, led investors to look away from the
region to other markets -- a diversion of capital flows that led
to less investment and more debt.
Economic policy reform -- particularly liberalization of
investment regimes -- is a vital part of attracting resources,
including the repatriation of flight capital. To move countries
toward action in this area and to help them attract indispensable
capital, the "Enterprise for the Americas" initiative
contemplates the establishment of two new vehicles in the InterAmerican Development Bank.
First, we propose to work with the regional governments and
the President of the Inter-American Development Bank (lOB) to
develop a new investment sector loan program within the lOB.
Through such sector loans, countries undertaking necessary
reforms could receive both technical advice and financial support
for liberalization of investment regimes and privatization
efforts. This program will be undertaken over the next two years
in conjunction with the World Bank while the lOB gains experience
in policy-based lending activities.
In a parallel effort, a five-year multilateral investment
fund administered by the lOB will be established to support the
efforts of Latin American and Caribbean nations to carry out
i~vest~ent reforms already agreed as part of lOB sector loans.
FIn~ncIn~ from the fund, which could be provided on a grant
baSIS, WIll be targeted to provide technical assistance to help
carry out specific privatization and other investment regime
lib 7ralization efforts. The fund could also support human
c~pIta~ develo~ment by providing training and education in
fInanCIal and Investment-related areas and help build business

5

infrastructure (e.g., telecommunications). We would expect that
the Fund would place particular emphasis on central America and
the Caribbean.
We envision that this $1.5 billion fund could provide up to
$300 million annually for increased support of countries'
efforts to reform their investment regimes. We will be discussing
the framework for creating such a fund with the President and
other members of the Inter-American Development Bank. We will
also work closely with Congress concerning establishment of the
five-year fund and u.s. contributions of $100 million annually.
We have already begun to discuss with other industrial countries
their participation in the Fund and feel confident of their
support. I have been asked by the Finance Ministers of the Group
of Seven to consult with their Deputies in pursuing this matter.
Easing Debt Burdens
To support further the process of investment reform, we
intend to build on the progress already being made in addressing
the debt problems of the region. Heavy debt burdens themselves
have a tremendous impact on overall confidence in Latin American
and Caribbean economies. For this reason, we initiated last year
a major international effort to reduce commercial bank debt
burdens. As we have already seen in cases such as Mexico and
Chile, reduced debt servicing burdens, in combination with strong
domestic economic reforms, can have a profound impact on capital
flows and confidence.
To support this process, we will encourage the IDB to join
the IMF and World Bank in supporting debt and debt service
reduction transactions negotiated by Latin American and Caribbean
countries with commercial banks under the debt strategy. As in
the IMF and World Bank, the availability of IDB resources will
be directly linked to economic reform efforts.
We also recognize that many countries in the region are
burdened by large official bilateral debt, which has been
increasingly difficult to service on a timely basis. In many
countries, u.S. bilateral obligations account for a significant
portion of such debt. To address this problem, the President has
proposed to take steps to reduce the burden of debt owed to the
u.S. Government through one special Facility. The Administration
is drafting legislation and implementation plans for this and
other aspects of the initiative.
Action will be taken on a case-by-case basis for those
countries in the region which adopt strong economic reform
programs in conjunction with the I~F and World Bank, ,are pursuing
comprehensive investment reforms w1th the Inter-Amer1can
Development Bank or other multilateral institutions, and have
concluded financing packages with their commercial banks including
debt and debt service reduction, as appropriate.

6

We will pursue different appro~ches to concessional and
commercial-type debt owed to the Unlted states Governme~t.
First, we propose to reduce and re 7tructure the ~oncesslona~ AID
and PL-480 debt of eligible countrles. outstandlng concesslonal
AID and PL-480 debt totals $7 billion for the Latin American and
Caribbean region. We will undertake case-by-case reduction of
this debt -- while preserving necessary reflows to offset current
spending in these and other programs. Reduced principal
obligations would be repaid in annual installments over several
years, depending on the individual circumstances of each ~ountry.
Interest payments on the restructured debt would be made 1n local
currency at an agreed concessional rate and would be deposited in
a trust fund for each country to support local environmental
projects.
We expect this program to produce sUbstantial debt reduction
on u.s. loans, particularly for the smaller countries of the
region and to generate local currency resources to support local
environmental projects. At the same time, the effect of this
proposal would not reduce new flows of u.s. foreign assistance to
the region.
We also propose to sell a portion of outstanding commercial
loans held by the united states Export-Import Bank and the Commodity
Credit Corporation in order to facilitate foreign investment and
to fund action in support of the environment. Interested investors
or environmental groups would be able to purchase the Ex-1m and ccr
obligations of those countries that have set up or expanded
specific debt/equity or debt/nature swap programs.
Reduction of official debt burdens can produce broad benefits
for Latin America and the Caribbean, provided countries undertake
vital economic reforms. Among these benefits will be an increased
ability to attract new resource flows and encourage the return of
capital held by their nationals overseas. If economic reforms are
sustained, this capital will provide a powerful stimulant for
growth.
Preserving the Environment
To underscore our commitment to sustainable natural resource
as a key component of a hemispheric growth strategy,
the Pres1dent has made dedication of resources to the environment
an important part of the "Enterprise for the Americas" initiative.
We ~ope tO,help channel re 70urces to environmental programs in
Latln Amerlcan and the Carlbbean through the sale of a portion of
Ex-I~ Bank and CCC ~oans.
In addition, we propose to provide
fundlng for the enVlronment by setting aside in trust funds the
local currency received as interest payments on restructured
bilateral concessional loans.
manageme~t

T~e enviro~ment~l trust funds will provide an ongoing

mechan1sm f~r flnanclng 7nvironmental projects in Latin America
and the Carlbbean. We wlll negotiate agreements with individual

7

countries to use these financial resources to provide support for
lasting projects and programs to conserve natural resources and
protect the environment.
Implementing a Comprehensive Initiative
As I am sure you all understand, the various provisions of
the "Enterprise for the Americas" initiative will require the
development of extensive implementation plans. We are working
on these details to facilitate timely operation of the initiative.
Inter-agency discussion will be required to establish a framework
for moving forward.
The Administration will seek legislative authority this year
to implement many of the provisions of the "Enterprise for the
Americas" initiative. We will want to consult and work
cooperatively with you in Congress to bring to fruition this new
effort to strengthen our ties with and promote growth in Latin
America and the Caribbean.
One of the important features of the President's initiative
is the combining of trade, investment, debt, and environmental
measures into a unified approach. It will be important to
implement the initiative as a whole in order to preserve its
potential to promote sustainable growth and to avoid letting it
fragment into independent, inefficient components.
One factor which we must take into account in this context
is the status of bills currently before the Congress which
contemplate similar action in some of the same areas. Many of
these bills represent innovative approaches to some of the same
problems the President has addressed in his initiative.
You have asked me today to comment specifically on two bills
now before your committee. Both H.R.· 5088 (AID and PL-480 debts)
and H.R. 5196 (AID debts) contemplate waiving countries'
obligations to pay the U.S. Government if those countries make
funds available in local currency to support environmental or
developmental aims. The intent of these bills parallels many of
the Administration's goals in the "Enterprise for the Americas"
initiative. I would like to raise several issues, however.
•

We feel strongly that economic reforms, particularly in the
investment area, must precede any step to reduce debt
burdens, since no amount of debt forgiveness can produce
lasting economic growth without sound policies. Moreover,
we believe that by rewarding performing countries we can
establish incentives for important ~conomic reforms.

•

We are not prepared to provide complete forgiveness of
obligations to repay the U.S. government. While such an
approach may appear to maxim~ze resources dedicate~ to the
environment or development, It could have a more s1zable
impact on ongoing U.s. programs. Furthermore, we believe

8

it is preferable for the U.S. government to adjust the
amount of relief provided according to each country's
circumstances.
•

H.R. 5088 makes specific decisions about the exchange of
local currency bonds for debt relief and about the management
of trusts established to receive these bonds. We believe it
is premature to make such decisions ~nd would want,to,
discuss these issues in order to avoId undue restrIctIons on
the operation of debt restructuring programs.

•

H.R. 5196 would allow the release of local currency resources
to fund a broad range of development programs and would
limit action to the Caribbean. We have focused the local
currency payments to be made available through the
President's initiative on the environment. We visualize
that this program will be available throughout the region
as part of the President's comprehensive initiative for the
Hemisphere.

recognize that these and other bills signal similarities
in the intent of the Administration and Congress. I want to
note in particular that we agree that it will be important to
consult with non-governmental organizations regarding this
program.
I

We do not believe, however, that these bills currently
contain the authority we may need to implement all aspects of the
President's initiative related to debt. For instance, it may be
advisable to provide explicit authority for the sale of a portion
of Ex-Im Bank and CCC loans in connection with the President's
initiative.
I am confident that through close consultation, the
Administration and Congress can accomplish these goals and
establish a comprehensive program that will serve the interests
of the United states and support our neighbors' efforts to expand
trade, attract capital, and achieve sustainable growth. I look
forward to working with you on specific legislative mechanisms.

Conclusion
President Bush has articulated a challenge for the nations
of the Americas ~- to secure the dream of freedom, democracy, and
economic prosperIty for all of their people.
, Like all successful efforts among neighbors, first steps
begIn at horne, ~ut success is assured by many hands working
together. We wlil look to our neighbors to commit themselves to
work toward our common goals, but we must be prepared ourselves
to respond to their efforts. I hope we can count on your
support.

TREASURY NEWS

Dellartment of the Treasury • washington, D.C. • Telephone 5•• -2041

STATEMENT BY THE HONORABLE
DAVID c. MULFORD
UNDER SECRETARY FOR INTERNATIONAL AFFAIRS
DEPARTMENT OF THE TREASURY
BEFORE THE
SENATE FOREIGN RELATIONS COMMITTEE

July 18, 1990
Introduction
Mr. Chairman and Members of the Committee:
I welcome this opportunity to present the Administration's views
on the new European Bank for Reconstruction and Development
(EBRD) .

U.s. participation in the EBRD is central to the conduct of our
foreign and economic policies in the new democracies of Eastern
Europe. We believe that the EBRD, acting in cooperation with
private investors and other multilateral and bilateral donors,
can play a vital role in assisting the nations of Eastern Europe
which embrace political pluralism make the difficult transition
to private sector, market oriented economies. Additionally, we
expect the EBRD to assist these countries in coping with their
very serious environmental problems •. Finally, our participation
in the Bank should create important trade and investment
opportunities for American business.
The united States played a key role in shaping the EBRD's
charter in such vital areas as its strong private sector focus,
human rights, the environment, and soviet borrowing. I am
pleased to report that we realized all our major objectives
during the negotiations.
Current status
The negotiations which began in mid-January and included 40
countries, the European community (EC), and the European
Investment Bank (EIB), concluded in early April with agreement on
a charter. Secretary Brady signed the charter on behalf of the
United states in Paris on May 29. This is an extremely short
time in which to develop the basic document for an institution of
this type. This speed clearly demonstrates the commitment of
participants to the establishment of the Bank.
NB-878

1

-2-

When the charter is ratified, the EBRD, with a capitalization of
ECU 10 billion, will have the capability of lending as much as
$12 billion in its first five years of operations. The charter
provides that it will become effective and enter into force when
members representing not less than two-thirds of the EBRD's total
subscriptions, and including at least two countries from Eastern
Europe, have deposited the necessary instruments.
The EBRD is still at
Bank will be located
Mr. Jacques Attali.
President Mitterrand

a relatively early stage of formation. The
in London, and its President-designate is
Mr. Attali is currently counselor to
of France.

We anticipate that the EBRD will make its first investments in
the spring of 1991. In our view, the EBRD's strong focus on the
private sector means that it should probably have a broad
similarity to the World Bank's International Finance Corporation.
The EBRD should have a relatively small high quality staff drawn
primarily from individuals with significant international
banking experience. We expect the EBRD and IFC to work together
closely in such areas as privatization, capital markets
development, and promotion of foreign investment. The EBRD
should also cooperate closely with the IBRD on lending for the
environment and basic infrastructure.
Major Elements of the EBRD
since the outset of the negotiations the united states has
supported the concept of a multilateral bank that would
facilitate the transition of borrowing countries in Eastern
Europe to political pluralism and market oriented economies.
The EBRD will be a unique institution for several reasons.
Compared to the other multilateral development banks (MDBs),
it will have a small number of potential borrowing countries,
and the average per capita incomes of its borrowers will be
higher. The EBRD's mission, therefore, is not to provide
concessional loans or loans for broad development purposes.
Instead, it should provide financial support for the
development of strong and dynamic private sectors in these
countries.
We believe we have succeeded in laying the basis for this
essential mission in the new charter. We must now ensure
that the charter is implemented effectively. I would like to
summarize the charter's key elements.
Capital -- The capitalization of the EBRD will be ECU 10
billion (approximately $12 billion), subscribed over five
years. Thirty percent of the capital wi~l be pa~d-in .
capital, with the remainder callable cap1tal. W1th th1s
capital base the EBRD theoretically could support
approximately $2.4 billion of lending annually for each of

- 3 -

its first five years of operation. We anticipate, however,
that actual lending levels will be considerably lower during
the EBRD's first years of operations.
Shareholding Schedule -- The U.S. will take a 10 percent
share and be the largest single shareholder. Our purpose in
seeking the largest shareholding position was to underline
the importance we attach to the objectives of this Bank and
our strong sense of partnership and kinship with both Eastern
and Western Europe. The EC members, together with the EC
and EIB, will hold a majority of the EBRD's shares.
Supporting Political and Economic Reform -- The purpose of
the Bank is to:"
foster the transition towards open
market oriented economies and to promote private and
entrepreneurial initiative in the Central and Eastern
European countries committed to and applying the principles
of multi-party democracy, pluralism, and market economics."
Backsliding -- The charter also has specific provisions to
address countries that retreat from these commitments. In
exceptional circumstances, or in cases where a member is
implementing policies not consistent with the Bank's
purpose, the Board of Directors may recommend that Governors
suspend or modify the member's access to Bank resources. A
decision to take such action will require a majority of not
less than two-thirds of Governors representing at least
three-fourths of the total voting power.
Private Sector -- The development of the private sector is
fundamental to the development of open, market oriented
economic systems in Eastern European countries. Largely at
our strong insistence, the EBRD has a significant private
sector orientation in its charter. The charter requires that
at least 60 percent of the EBRD's aggregate annual lending
must be to the private sector. In addition, at least 60
percent of the EBRD's lending by country over the first five
years must be to the private sector or to state-owned
enterprises that are converting to private ownership and
control. The remaining resources can be lent for
infrastructure and environmental projects that support the
development of the private sector, or to state-owned
enterprises that operate competitively, i.e., are autonomous
of their governments and subject to bankruptcy laws.

- 4 -

Subscription Payment -- Payments of subscriptions can be made
in European Currency Units (ECU), the u.s. dollar, or the
Japanese yen. The United States will have a fixed dollar
funding commitment to the EBRD, as it does in the other MDBs.
The dollar valuation will be set at average dollar-ECU
exchange rates for the period September 30, 1989, to
March 31, 1990, i.e., $1.16701 to the ECU. with a 10 percent
share of the EBRD, the U.S. will have a funding commitment
fixed in dollars over five years of $350 million for paid-in
capital. The callable capital portion of our subscription is
also fixed at $817 million. This translates into an annual
commitment of $70 million of budget authority for paid-in
capital and $163.4 million of program limitations for
callable capital.
Environment -- The environment is a serious problem in
Eastern Europe, and a major concern of all EBRD members. The
EBRD is the only multilateral development bank which has
environmental provisions in its charter, due in large measure
to U.S. efforts. Under the charter the EBRD will "promote in
the full range of its activities environmentally sound and
sustainable development" and "report annually on the
environmental impact of its activities."
Soviet Borrowing -- A key issue for the United States was
borrowing by the Soviet union. We argued strongly for
limitations on soviet access to the EBRD's resources.
Agreement was reached ultimately to limit for the first three
years any Soviet borrowing to the level of its paid-in
capital to the EBRD. The Soviet Union will subscribe to six
percent of the EBRD's capital, and its paid-in portion will
be in "hard" currency. Lending to the Soviet Union also
will be confined to the private sector (including privatization), or to help enterprises operating competitively and
moving to a market orientation.
If the Soviets therefore made all their paid-in contribution
in the first three years (vs. a five year payment schedule)
they could borrow a maximum of $216 million. with EBRD
capital of approximately $12 billion, total lending to all
potential borrowers over the first three year period could
theoretically reach $7.2 billion. Thus, Soviet borrowing
will represent a relatively small proportion of possible EBRD
lending.
In addition, any change in the U.S.S.R. 's borrowing status at
the end of the three-year period will require the agreement
of three-quarters of the members representing at least 85
percent of the voting power.

- 5 -

Restricting Soviet borrowing to their own paid-in capital for
the first three years means that U.S. taxpayer funds will not
be used for Soviet borrowing during this period.
Board of Directors -- There will be a resident Board of 23
Executive Directors, 11 representing the European Community
and 12 representing the non-EC member countries. The United
States will have our own Executive Director, as we do in the
four other MDBs to which we belong.
Conclusion
The Administration believes strongly that it is in the
interest of the United States to join the EBRD as a charter
member. It will demonstrate our solidarity with Europe and
our support for the sweeping political and economic reforms
now being made in Eastern Europe, and will give us more
influence over the structure and operations of the Bank. The
Administration strongly urges the Congress to support
legislation for the U.S. to become a charter member of the
EBRD.
Thank you.

federal finonc:ing .
WASHINGTON,

D.C. 20220

bankNE

FOR IMMEDIATE REl1EE$.E;

~

S
July 18, 1990

FEDERAL FINANCING BANK ACTIVITY

Charles D. Haworth, Secretary, Federal Financing Bank
(FFB) , announced the following activity for the month of
June 1990.
FFB holdings of obligations issued, sold or guaranteed
by other Federal agencies totaled $157.7 billion on
June 30, 1990, posting an increase of $16.1 billion from
the level on May 31, 1990. This net change was the result
of increases in holdings of agency debt of $15,892.0 million
and in holdings of agency assets of $307.0 million, while
holdings of agency-guaranteed debt decreased by
$50.2 million.
FFB made 30 disbursements during June.
Attached to this release are tables presenting FFB
June loan activity and FFB holdings as of June 30, 1990.

NB-879

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Page 2 of 4

JUNE 1990 ACI'IVITI

DATE

K~~ __

A~IC{

AMXJm'
OF ADVANCE

INI'EREST
PATE

PATE

(semiannual)

(ot1"'.CY than
5eI:',l-annual)

9/1/00
9/2/14
12/3/90

8.720%
8.716%
8.249%

8.627% qtr.
8.906% ann.

7/2/90
7/2/90
7/2/90
7/2/90
7/2/90
7/2/90
7/2/90
7/2/90
7/2/90
7/2/90
7/2/90
7/2/90
7/2/90
7/2/90
7/2/90

8.138%
8.078%
8.059%
8.087%
8.085%
8.080%
8.110%
8.119%
8.069%
8.047%
8.150%
8.164%
8.173%
8.192%
8.127%

FINAL
MA'IURTIY

INTERFSI'

CEBT

D1DRT:- I?1FQRT _Pt\l',1<

l;ote :;86
tlote :;87
note ::88

6/1
6/1
6/1

$ 338,000,000.00
24,000,000.00
321,000,000.00

PLc:.oL1TIION TRUSf CDPJDPATION

t:ote tlo. 90-03
;dvance #IS
Advance #19
Advance #20

Advance #21
Advance ~22
Advance #23
~ance

#24

Advance
Advance
Advance
;dvance
Advance
Advance
Advance
;dvance

q25
~26

~27
~28

.29
#30
01
02

6/1
6/5
6/4
6/7
6/8
6/11
6/12
6/13
6/18
6/19
6/21
6/25
6/26
6/27
6/29

1,000,000,000.00
200,000,000.00
168,000,000.00
34,000,000.00
1,064,656,000.00
2,619,758,069.00
141,700,000.00
548,120,000.00
3,525,964,000.00
423,825,000.00
640,869,000.00
2,900,000,000.00
498,458,000.00
32,200,000.00
2,600,000,000.00

6/8
6/15
6/20
6/30

165,000,000.00
92,000,000.00
123,000,000.00
111,000,000.00

6/20/90
6/25/90
6/30/90
7/9/90

8.087%
8.055%
8.047%
8.127%

6/1
6/30

165,000,000.00
145,000,000.00

10/1/91
10/1/91

8.457%
8.214%

TIlINESSEE VALlEY ALJIIDRITY
Short-tern
Short-term
Short-term
Short-term

Borxi
Borxl
Borxi
Borxl

#39
#40
#41
#42

AGrnCY ASSETS

fm1ER'S ttCME ACMINISTRATIOO
RHIF - CEO #57541
RHIF - CEO #57542

8.636% ann.
8.383% ann.

Page 3 of 4

JUNE 1990 ACrIVrI."l

AK:XJNr

FINAL

OF ADVANCE

MMURIT'i

INI'ERESI'
RATE

INI'EREST

RATE

(semi-

(other than

annual)

semi-anrrual)

1/2/24
6/30/92
12/31/19
1/2/18
1/2/18

8.561%
8.363%
8.567%
8.583%
8.582%

8.471%
8.277%
8.477%
8.493%
8.492%

9/28/90

8.172%

OOVERNMENI' - GUARANI'EED LOANS

mEAL TI EC'IRIFICATIOO

AIlIDITSI'AATIOO

Alabama Electric #244A
Old lbninian Electric #267
United Power Asscx:.. #159A
~ of Florida #340
New HaIIp;hire Electric #270

6/8
6/15
6/18
6/29
6/29

$

646,000.00
1,203,000.00
1,442,000.00
8,111,000.00
447,000.00

TENNESSEE VAT J F:Y AIJrnJRITY
Sev!m states Enerav Corooration

Note A-9o-10

6/29

546,335,197.83

qtr.
qtr.
qtr.
qtr.
qtr.

1"\(1('

4

0

t

FEDERAL FINANCING BANK 1I0LDINGS
(in millions)
Program
Agpncy Debt:
Export-Import Bank
NCrJA-Central Liquidity Facility
Rpsolution Trust Corporation
Tennessee Valley Authority
l]. S.
Posta 1 Serv ice
sub-total"
Aqpncy Assets:
f'armers Home Administration
OIlHS-Health Maintenance Org.
DHHS-Medical Facilities
Rural Electrification Admin.-CBO
Small Business Administration
sub-total*
Government-Guaranteed Lending:
DOD-Foreign Military Sal~s
DEd.-Student Loan MarketIng Assn.
DHUD-Community Dev. Block Grant
DHUD-Public Housing Notes +
General Services Administration +
DOl-Guam Power Authority
DOL-Virgin Islands
NA~A-Space Communications Co.
+
l)()tl'::.;r.1p Lease l'inancing
RllTdl E;lectrification Administration
~B~-Small
Business Investment Cos.
::;bA-Statel Loci'! I Development Cos.
TVA-Seven Stdtes Energy Corp.
POT-Section ')11
DC>T-WMATA
sub-t.otal *
grand total*
*fTgures may not total due to roundIng
+does not include capitalized interest

June )0 • 1990
$

May 31.

Net
1990

Chan~e

6/1/90-/301912
133.4
-10.0
16,)97.6
-629.0
-0-

FY

'90 Net

Chan§e

10/1/89-6130/9
$

160.3
-56.5
26,367.1
-2,531.0
-297.2

11,010.5
64.9
9,969.5
15,565.0
5,897.8

$

---------

--------

58,399.6

42,507.7

15,892.0

23,642.6

51,901.0
74.7
90.1
4,135.2
9.1

51,591.0
74.7
93.0
4,135.2
9.2

310.0
-0-2.9
-0-0.2

-1,410.0

-1,458.0

11,143.9
54.9
26,367.1
14,936.0
5,897.8

$

---------

---------

--------

56,210.1

55,90).1

307.0

9,887.0
4,880.0
259.0
1,950.8
367.3
30.3
25.4
1,095.9
1,672.4
19,167.5
452.9
757.3
2,378.4
23.7
177.0

9,904.3
4,880.0
260.4
1,950.8
371.8
30.3
25.4
1,095.9
1,672.4
19,182.0
472.8
761. 8
2,316.4
23.8
177.0

-17.3
-0-1.5
-0-4.4
-0-0-0-0-14.4
-19.9
-4.5
12.0
-0.1
-0-

---------

---------

---------

--------

43,075.0

43,125.2

-50.2

=========

$ 157,684.7

$

=========

=--::-====-

141,536.0

16,148.7

$

-0-

2.0
-47.5
-2.5

-301.6
-30.0
-24.4
-44.5
-10.8
-0.6
-0.5
100.7
-48.2
-107.4
-102.4
-42.1
33.6
-1 L 5
-0-

-591.7

$

21,592.9

4

TREASURY NEWS

0811artment of til. Treasury • Wasnlnllton,lt.c .• Telellhone 5 ••. 2041

STATEMENT BY THE HONORABLE
DAVID c. MULFORD
UNDER SECRETARY FOR INTERNATIONAL AFFAIRS
DEPARTMENT OF THE TREASURY
BEFORE THE
SENATE FOREIGN RELATIONS COMMITTEE

July 18, 1990
Mr. Chairman and Members of the Committee:
It is a pleasure to appear before you today. I am here
to testify on the Administration's request for authorization
to participate in the ninth replenishment of the resources of
the International Development Association (IDA).
International Development Association
IDA, an affiliate of the International Bank for
Reconstruction and Development (IBRD), is the principal
vehicle to provide support for the low-income developing
countries. It is the world's single 'largest source of MDB
lending on concessional terms. IDA plays a pivotal role in
alleviating poverty and enhancing development and growth in
the poorest nations. Only countries with per capita incomes
of $650 (in 1988 dollars) or less are currently receiving IDA
credits. However, the majority of IDA lending goes to
countries with per capita incomes of less than $400. (See
Annex I for a list of all IDA eligible countries.)
Negotiations on the ninth replenishment of IDA resources
(IDA-9) began in early 1989 and were completed in December
1989. The IDA Executive Board approved the IDA Deputies'
Report on January 30, 1990. This report, which contains the
results of the negotiations for the IDA-9 replenishment, has
also been approved by the IDA Board of Governors. We are
seeking Congressional authorization for U.S. participation in
the replenishment.
NB-880

- 2 -

An important goal of the replenishment is to maintain
the size of IDA lending in real terms. To assist in
attaining that goal, the Administration is requesting
authorization for a U.S. contribution to IDA-9 of $3,180
million, or $1,060 million annually for three years. This
contribution to IDA-9 would maintain the amount of our IDA-8
contribution in real terms. The U.S. contribution to IDA-8
was $2,875 million over three years, or $958 million
annually. Thus, the U.S. contribution would increase by $102
million a year. Still, the U.S. share of IDA-9 will decline
to 21.6 percent compared to a U.S. share of 23.2 percent of
IDA-8.
IDA-9 -- intended to fund credits to be committed during
the three-year period July 1, 1990, to June 30, 1993 -- will
total $15.5 billion. contributions from 34 donors, combined
with reflows from earlier loans, will support an annual
lending program of about $5.5 billion. This means that every
U.S. dollar contributed to IDA-9 will support almost 5
dollars of new IDA credits.
Although extended on concessional terms, IDA credits
have the same standards as IBRD loans. All credits must be
technically, economically, financially, and environmentally
sound, compatible with a sound development plan, and of high
priority for the economic development of the country.
During the IDA-9 negotiations, the United States worked
for measures to ensure that IDA's resources are used in the
most effective and efficient manner. In this regard, the
united States achieved all its major policy objectives:
•

A borrowing country's economic performance, will
receive greater weight as a basis for allocation of
resources;
poverty reduction will be given even greater
attention;

•

Important new measures to address environmental concerns
will be factored into IDA lending; and

•

IDA and IMF collaboration will be strengthened.

Economic Performance
During IDA-9 greater emphasis will be placed on
macroeconomic performance as a condition for lending. This
is necessary because there are insufficient resources to fund

-

3 -

fully all potential IDA recipients. Scarce resources must be
used effectively, and all countries should compete for scarce
resources on the basis of transparent, objective criteria.
Sound macroeconomic performance should be required for
all borrowers. In order to ensure that IDA credits are
approved in the context of adequate policies, an assessment
and determination of each borrower's performance will be made
annually. This is a significant new policy which should go a
long way toward ensuring that IDA resources are used to
promote major economic reforms in borrowing countries.
Performance criteria will include macroeconomic and sectoral
management, and policies on poverty reduction and the
environment.
The IDA-9 Deputies Report states that IDA's programs
should not be regarded as entitlements. IDA will cut back
its lending programs in those countries where lending
operations are seriously prejudiced by unsound macroeconomic
and sector policies.
Poverty Reduction
Poverty reduction remains central to IDA's mandate. A
number of measures are included in the IDA-9 Deputies' Report
dealing with poverty reduction. They are:
•

Giving increased weight in the performance criteria for
the allocation of IDA resources to an effective
commitment to poverty reduction by governments;

•

Making poverty reduction central to IDA's policy
dialogue with recipient countri~s;
strengthening efforts to protect the poor during the
adjustment process and to involve the poor in an
equitable development process; and

•

Developing recipient countries' national plans and
strategies to eliminate the causes of poverty.

Environment
Under IDA-9, increasing attention will be paid to
environmental concerns and greater efforts will be made to
ensure that a borrowing country's basic development strategy
is environmentally sound in order to assure the
sustainability of the resource base, economic growth, and
poverty alleviation. One of our most significant

- 4 -

accomplishments in the IDA replenishment negotiations was the
inclusion of more stringent environmental provisions. The
IDA-9 Deputies Report provides for:
•

Implementation of environmental impact assessment (EIA)
procedures, thereby helping to assure that environmental
costs and benefits are weighed carefully early in the
project appraisal process.
•

projects which are expected to have significant
environmental consequences will receive rigorous
technical reviews at sufficiently early stages of
project preparation to ensure that their
environmental impacts are fully factored into
decisions on site selection and project design.

•

As part of this process, environmental impact
assessments on significant projects will be made
available to the Executive Board and NGOs at least
180 days in advance of Board action.

•

Increasing public access to environmental information,
including environmental impact assessments or summaries
of them, thereby promoting more participation by local
community groups and non-governmental organizations;

•

Closer collaboration and cooperation with non-governmental organizations in borrowing countries;
Greater emphasis on energy efficiency and conservation,
including end-use efficiencies, renewable energy technologies, and least-cost planning ·in borrowing countries;

•

More support for debt for nature swaps; and

•

More rapid progress on environmental action plans.
Environmental action plans will be completed on all IDA
borrowers as soon as feasible.

In summary, EIAs will be carried out on all
environmentally sensitive projects. Greater efforts will be
made to involve local non-governmental organizations (NGOs)
in the assessment of these sensitive projects. Environmental
action plans will be prepared for all IDA recipients, with
priority given to those countries where major problems have
been identified.

- 5 -

IDA and IMF
In the area of collaboration between IDA and the IMF,
IDA will take steps to become more involved in the process of
developing and negotiating country Policy Framework Papers
(PFPs). In addition, there will be an examination of ways to
further coordinate the operations of IDA and the IMF where
both institutions are engaged in adjustment lending and
where their operations depend on each other for success.
Africa
Close to fifty percent of the IDA-8 resources was
allocated to Sub-Saharan Africa. The share of IDA-9
resources allocated to Sub-Saharan Africa will be between
forty-five and fifty percent, if performance continues to
warrant that level of support.
Burden Sharing
Japan, Germany, France, the united Kingdom, Italy, and
Canada have agreed to provide about 57 percent of IDA-9
resources. Since other countries share the costs of
providing IDA credits, IDA is an extremely cost-efficient way
for the United States to express its humanitarian concern for
the poorest of the world. There is a close correlation
between our broader national interests and IDA lending to
countries such as Bolivia, Ghana, Senegal, Bangladesh, and
Pakistan.
IDA and Debt
On the debt front, IDA has undertaken an initiative to
help ease the burden of commercial bank debt on the poorest
countries. In June 1989, the World Bank allocated $100
million of FY 1989 IBRD net income to IDA. These funds will
be targeted to finance commercial bank debt reduction in IDAonly countries. Eligibility of countries for using these
resources is conditioned on strong economic reform programs
and sound debt management strategies.
This effort is now getting under way. Bolivia may be
one of the first countries to be considered for access to
these resources.
Bolivia has already reduced its medium and
long-term commercial bank obligations by fifty percent
through buyback operations, and is now seeking to eliminate
this debt entirely. If provided to Bolivia, IDA funds would
catalyze bilateral donor resources and significantly
contribute to Bolivia's ongoing efforts to normalize its

- 6 -

relations with the international financial community and
revitalize economic growth and development. Some African
countries may also benefit from this program this year.
u.S. Debt Relief
Finally, Mr. Chairman, in the context of aiding the
poorest of the world, the united States and other official
creditors are taking measures to assist the least developed
countries that pursue sound economic reform programs, as
evidenced by an IMF or World Bank economic reform program.
These measures include both special treatment ("Toronto
terms") for the poorest countries in Paris Club reschedulings
and bilateral actions to convert old development assistance
loans into grants. Section 572 of the FY 1989 Foreign
operations Appropriations Act allows forgiveness of economic
assistance loans to Sub-Saharan African countries pursuing
economic reform. So far fourteen countries are eligible.
Their total debt relief could be as much as $852 million.
(See Annex II.)
Conclusion
The IDA-9 replenishment.deserves the strong support of
the united states. IDA better fulfills its mandate to assist
the poorest countries because all major u.S. policy goals
were achieved during the negotiations. These policies
include provisions regarding economic policies, poverty
alleviation, the environment, and coordination with the IMF.
In addition, IDA will continue to provide vital support to
Sub-Saharan African countries.
Thank you.

TREASURY NEWS

apartment of the Treasury • washington, D.C . • Telephone 56& .. 2041
FOR RELEASE AT 4:00 P.M.
July 18, 1990

CONTACT:

Office of Financing
202/376-4350

TREASURY TO AUCTION $11,500 MILLION OF 2-YEAR NOTES
The Department of the Treasury will auction $11,500 million
of 2-year notes to refund $9,493 million of 2-year notes maturing
July 31, 1990, and to raise about $2,000 million new cash. The
public holds $9,493 million of the maturing 2-year notes, including
$615 million currently held by Federal Reserve Banks as agents for
foreign and international monetary authorities.
The $11,500 million is being offered to the public, and any
amounts tendered by Federal Reserve Banks as agents for foreign and
international monetary authorities will be added to that amount.
Tenders for such accounts will be accepted at the average price of
accepted competitive tenders.
In addition to the public holdings, Federal Reserve Banks, for
their own accounts, hold $1,478 million of the maturing securities
that may be refunded by issuing additional amounts of the new notes
at the average price of accepted competitive tenders.
Details about the new security are given in the attached
highlights of the offering and in the official offering circular.
000

Attachment

NB-88l

HIGHLIGHTS OF TREASURY
OFFERING TO THE PUBLIC
OF 2-YEAR NOTES
TO BE ISSUED JULY 31, 1990
July 18, 1990
Amount Offered:
To the public .................. . $11,500 million
Description of Security:
Term and type of security ...... . 2-year notes
Series and CUSIP designation ... . AC-1992
(CUSIP No. 912827 ZC 9)
July 31, 1992
Maturity date
To be determined based on
Interest rate
the average of accepted bids
Investment yield ............... . To be determined at auction
Premium or discount ............ . To be determined after auction
Interest payment dates ......... . January 31 and July 31
Minimum denomination available .. $5,000
Terms of Sale:
Method of sale ................. . Yield auction
Competitive tenders ............ . Must be expressed as an
annual yield, with two
decimals, e.g., 7.10%
Noncompetitive tenders
Accepted in full at the average price up to $1,000,000
Accrued interest
payable by investor
None
Payment Terms:
Payment by noninstitutional l'nvestors .... ..... Full paymen t t 0 b e
submitted with tender
Deposit guarantee by
designated institutions ......... Acceptable
Key Dates:
Receipt of tenders. '" .......... Wednesday, July 25, 1990,
prior to 1:00 p.m., EDST
Settlement (final payment
due from institutions):
a) funds immediately
available to the Treasury
Tuesday, July 31, 1990
b) readily-collectible check
Friday, July 27, 1990

April 26

' •• p.m.

AGREEMENT ESTABLISHING THE
EUROPEAN BANK FOR RECONSTRUCTION AND

DEVELOP~.1El'IT

CONTENTS

Chapters

1-

Purpose, functions and membership

11-

Capital

IIJ-

Operations

IV -

Borrowing and other miscellaneous powers

v-

Currencies

VI-

Organization and manalement

VII-

Withdrawal and suspension of membership. temporary suspension and
termination of operations

VIII-

Status. immunities. privileges and exemptions

IX-

Amendments, interpretation, arbitration

x-

Final provisions.

AnDU A
Annex B

.-\GREE~lE~T

ESTABLISHING

THE Et:ROPEAN BANK FOR RECONSTRlJCTION
AND DEVElOP~t[NT

The contracting parties.
Committed to the fundamental principles of multiparty democr3cy. the
rule of law. respect for 'human rights and market economics:
Recalling the Final Act of the Helsinki Conference on Security lnd
Cooperation in Europe. and in particular its Declaration on Principles;
Welcoming tne intent of Central and Eastern European countries to further
the practical implementation of multiparty demoeracy. strengthening democratic
institutions. the rute of taw and respect for human rights and their willingness to
implement reforms in order to evolve towards market·oriented economies;
Considering the importance of close and coordinated cooperation in order
to promote the economic proaress of Central and Eastern European countries to
help their economies become more internationally competitive and assist them in
their reconstruction and development and thus to reduce. where appropriate. any
risks related to the financing of their economies;
Convinced that the establishment of a multilateral financial institution
which is European in its basic character and broadly international in its
membership would help serve these ends and would constitute a new and uniQue
structure of cooperation in Europe;
Have agreed to establish hereby the European Bank for Reconstruction and
Development (hereinafter called - the Bank-) which shall operate in accordance with
the following:

Chlpter f
PCRPOSE. FU~CT[O/'-iS A/'-iD ~IEMBERSHiP

Article I
PURPOSE

In contribullng 10 economic progress and r~construction. the purpose of
the Bank snail be to foster the transition towards open marker - orientec economies
3nd 10 promote private and entrepreneurial initiativt in the Central and E:\.Srern
European countries committed to and applving the principles of multiparty
democracy. pluralism and market economics.

Article 1
FUNCTIONS
I. To fulfil on a long-term basis its purpose of fouering the transition of· C~ntr'll
lnd Eastern European countries towards open marleet-oriented economIes and the
promotion of private and entrepreneurial initiative. the Bank shall lSSlst the
recipient member countries to implement structural and sectoral economic reforms.
including de monopolization. decentralization and privatization. to help their
economies become fully integrated into the international economy by mu.sures .

(i) to promote. through private and other interested investors. the establlShmen!.
improvement and expansion of productive. competitive and private sector activity.
in particular small and medium sized enterprises:
(ii) to mobilize domestic and foreign capital and
end described in (i) ;

experienc~d

management to the·

(iii) to foster productive investment. includin. in the service and financial sectors.
and in related infrastructure where that is necessary to suPPOrt private and
entrepreneurial initiative. thereby assisting in makins a competitive environment and
raising productivity. the standard of livins and conditions of labour;
(iv) to provide technical assistance for the preparation. financing and
implementation of relevant projects. whether individual or in the context of specific
investment programmes:
(v) to stimulate and encourage the development of capital markets;
(vi) to give support to sound and economically viable projects involving more than
one recipient member country ;
(vii) to promote in the full range of its activities
sustainable development; and

environmentally sound and

(viii) to undertake such other activities and provide such other services as may
further these functions.
2. In curyinl out the functions referred to in panlraph I of this Anicle. the Bank
shall work in close coo()eAtion with all its mem~rs and, in such manner as it may
deem appropriate within the terms of this A.reement, with the International
Monetary fund. the International Bank (or Reconstruction and Development, the
Intemational Finance Corporation, the Multilateral Investment Guarantee A atney.
and the OrlUlisation for Economic Cooperation and Development, and shall
cooperate with the United Nations and its Specialis-ed Alencies and other related
bodies, and any entity. whether public or _private. concerned with the economic
development of. and investment in, Central and Euterft European countries.

Article J

,'EMBERSHI'
I

~ember5hip

in the Bank shall be open:

Ii) to (I) European countries and (2) non-European countries which are members
of the International ~onetary Fund; and
(ii)

to the European Economic Community and the European Investment Bank

2. Countries eligible for membership under paragraph I of this Article
which do not become members in accordance with Article 61 of this Agreement
may be admitted. under such terms and conditions as Ihe Bank may determine. to
membership in Ihe Bank upon Ihe affirmative VOlt of not less Ihan two-thirds of
the Governors. representing not less than three-fourths of the lotal votlng power of
•
the members.

Chlpter II

("PIT AL
Article ..

AUTHORIZED CAPITAL STOCK
I. The original authorized capital stock shall be ten (10) thousand million
ECU. It shall be divided into one million (1,000,000) shares, having a par value oi
ten thousand (10.000) ECU each, which shall be available for subscription only by
members in accordance with the provisions of Article 5 o( this Agreement.

2. The original capital stock shall be divided into paid-in shares 3nd
callable shares. The initial total aggregate par value of paid- in shares shall be Ihree
(3) thousand million ECU.

3. The authorized capital stock may be increased at such time and under
such terms as may seem advisable, by a vote or not less than two-thirds or the
Governors. representing not tess than three-fourths o( the total vOlinl power of the
members.

Article 5

St:BSCRIPTI0N OF SHARES
I Each member shall subscribe to shares of the capital stock of the Bank.
subject 10 fulfilmenl of Ihe member's legal requirements. Each subscritHicn to the
original authorized capital stock shall be for paid-in shares and callable shlres in
rhe proportion of 3 to 7. The initial number of shues available to be subscribed 10
by Signatories to this Agreement which become members in accordance wilh ArtIcle
61 of this Agreement shall be thal set forth in Annex A. No member shall have In
initial subscription of less than 100 shares.
2. The initial number of shares to be subscribed to by countries which lre
admitted to membership in accordance with paragraph 2 of Arlicle ) of thiS
Agreement shall be determined by the Board of Governors; provided. however.
thaI no such subscription shall be authorized which would have the effect of
reducing Ihe percentage of capital stock held by countries. which are members of
Ihe European Economic Community, together with the European Economic
Community and the European Investment Bank, below the majority of the toral
subscribed capital stock.
3. The Board of Governors shall at intervals of not more Ihan five (5)
years review the capital stock of the Bank. In case of an increase in the authorized
c3pital stock, each member shall have a reasonable opportunity to subscribe. under
such uniform terms and conditions as the Board of Governors shall determine, to a
proportion of Ihe increase in stock equivalent to the proportion which its stock
subscribed bears 10 the lotal subscribed capital stock immediately prior to such
increase. No member shall be obliged to subscribe to any part of an Increase oi
capital stock.
4. Subject to the provisions of paragraph 3 of this Article. the Board of
Governors may. at the request of a member. increa.se the subscription of that
member, or allocate shares to that member within the authorized capital srock
which are not taken up by other members; provided. however, that such increase
shall not have the eHect of reducina the perce Iltage of capital stock held by
countries which are members of the European Economic Community, toge!her with
the European Economic Community and the European Investmeot Bank, below the
majority of the total subscribed capilal stock,

S. Shu" of stock initially subscribed to by members shall be issued at par.
Other shares shall be issued at par unless the Board of Governors. by a vote of not
less thLD two· thirds of the Governors. representin. nOI less than two-thirds of the
tow 'lotio. power of the members. decides to issue them in special circumstances
OD other terms.
6. Shares of stock shall not be pledged or encumbered in any manner
whatsoever. and they shall not be transfmble ucept to the Bank in accordance
with Chapter VII of this A.reement.
7. The liability of the mem~f1 on shares shall be limited to the unpaid
portioo of their issue price. No member shall be liable. by rea.son of its
membership. for oblilations of the Bank.

Article 6

PA YME~T OF SUBSCRIPTIONS
I. Payment of the paid-in shares of the amount initially subscribed to by
each Signatory to this Agreement. which becomes a member in aeeordaace wIth
Article 61 of this Agreement. shall be made in (ive (5) instalments of twenty 1:0)
per cent each of such amouDt. The first inStalment shall be paid by each member
within si~ty (60) days after the date of the entry inco force of chis Agreement. or
3fter the d:ue of deposit of its instrument of ratification. acceptance or approvll in
lccordanee with Article 61. if this lalter is later than the date of the entrv into
force. The remaining four instalments shall each become due successively on~ ~e3r
from the dare on which the preceding instalment became due and shall e3ch.
subject to the legislati ... e requirementS of each member. be paid.

2. Fifty per cent of payment of each instalment pursuant to ~ara8raph I of
this Article. or by a member admitted in accordance with paragraph 2 of Article
3 of this Agreement, may be made in promissor)' notes or other obligations issued
by such member and denominaled in ECU. in United Statis dollars or in Japanese'
yen. to be drawn down as the Bank needs (unds (or disbursement as a result of its
operations. Such notes or oblilations shall be nOD-nelotiable, non-interest-bearing
and payable to the Bank at par value upon demand. Demands upon such DoteS or
obligations shall. o\'er reasonable periods of time, be made so that the value of
such demands in ECU at the time of demand from each member is proponioDal to
the number of paid-in shares subscribed to and held by each such member
depositing such notes or obligations.

3. All payment obligations of a member in res~ct of subscription to
shares in the initial capital stock shall be settled either in ECU, in United States
dollars or in Japanese yen on the basis of the average e~chanle nte of the relt ... ant
currency in terms of the ECU (or the period from 30 September 1989 to 11 March
1990 inclusive.
4, Payment of the amount subscribed to the callable capital stock of the
Bank shall be subject to call. takin. account of Articles 17 and 42 of this
Aareement. only as and when reQuired by the Bank to meet itS liabilities.

5. In the event o( a call referred to in paragraph 4 of this Article.
payment shall be made by the member in ECU. in United States dollars or in
Japanese yen. Sueh calls shall be uniform in ECU value upon each callable 5hare
calculated at the time of the call.
6. The Bank shall determine the place (or any payment under this Article
not later than ooe month after the inauaural meetina of its Board of Governon,
provided that. before such determination, the payment of the fint instalment
refened to in panlnph I of this Article shan be made to the Euro~an (ovestment
Bank, as trustee (or the Bank.

7 For subscriptions olher than Ihose described in piH3grapl\S I. : lnd 3 ,r'
this ,1.rtlcl~. paym~n!s by a member In respect of subscrlpllon 10 paid-in ~I\lm :n
the luthorized clpital siock shall b~ made in ECU. in L'nued Stales dollars ,)r In
Japanese yen whether in c15h or in promissory notes or in other obligations.

8. For Ih~ purposes or tnis Article. payment or denomination in EO':
shall include payment or denomination in any fully convertible currency wnich IS
equivalent on Ihe dale of paymenl or encashment to Ihe value or the rele"ant
obligation in ECU.

Article 7
ORDINARY CAPITAL RESOURCES

AS used in this Agreement. the term "ordinary capital resources· of the
Bank shall include the following:

(i) authorized capital stock of the Bank. including both paid-in lnd
.:allable shares. subscribed to pursuant to Article S of this Agreement:
(ii) funds raised by borrowings of the Bank by virtue of pOllolers conferred
by subparagraph 0) of Article 20 of this Agreement. to which the commitment to
calls provided for in paragraph 4 of Article 6 of this Agreement is applicable
(iii) funds received in repayment of loans or guarantees and proceeds from
the disposal of equity investment made with the resources indicated in !ubparagraphs (i) and (ii) of this Article;

(iv) income derived from loans and equity investment. made from the
resources indicated in sub-paragrapns (0 and (ii) of this Article, and income
derived from guarantees and underwriting not formin. part of the special
operations of the Bank; and
(v) any other funds or income received by the Bank which do not form
part of its Special Funds resources referred to in Article 19 of this Agreement.

Chapter III
OPERATIONS

Article 8
RECIPIE~T

COUNTRIES AND USE OF RESOURCES

I The resources and facilities of the Bank shall be ustd t'(clusi .. ~ly [0
Implement the purpose and carry out the func:ions set forth. respecti .. t!~. In
Articles I and 2 of this Agreement.

2. The Bank may conduct its operations in countries from Ctntr31 lr,d
Eastern Europe which are proceeding steadily in the transition to\Oruds mark!l
Oriented economies and the promotion of private and entrepreneurial initI3tj .. ~. lnd
.. n ic h appl y. by concrete steps and otherwise. the prine iples as set forth in Article
I of this Agreement.
3. In cases where a member might be implementing policies which are
inconsistent with Article I of this Agreement, or in exceptional circumstances.
the Board of Directors shall consider whether access by a member to Bank
resources should be suspended or otherwise modified and may make
recommendations accordingly to Ihe Board of Governors. Any decision on Ihese
matters shall be taken by the Board of Governors by a majority of not less than
two-thirds of the Governors. representing not less ~han three-fourths of the total
voting power of the members.
4. (i) Any potential recipient country. may request that the Bank provide
access to its resources for limited purposes over a period of three Ol years
beginning after the entry into force of this Agreement. Any such request shall be
anached as an integral part of this Agreement as soon as it is made.

(ii) During such a period:
(a) the Bank shall proyide to such a country, and to enterorises in its
territory. upon their request. technical assistance and other types of asSistance
directed to finance iu private sector. to facilitate the transition of state-owned
enterprises to private ownership and control, and to help enterprises operating
competitively and movin. to participation in the market oriented economy. subject
to the proportion set forth in paraaraph 3 of Article II of this Agreemen~
(b) the total amount of any assistance thus provided shall not elceed the
total amount of cash disbursed and promissory notes issued by that country for its
shl!~.

(iii) At the end of this period. the decision to allow such a country access
beycnd the limiu !ptcified in sub-paralrtphs (a) and (b) shall be taken by the
Board of Governon by a majority of not less than three-rourths of the Governors
representinl not less than eilMy-five (15) ptr cent of the total votina power of the
members.

Mticlt 9
'ORDINARY AND SPECIAL OPERATIONS

The operations of the Bank shall consist of ordinary operatioQs financed
from (he ordinary capital resources of the Bank referred to in Article 7 of this
Agreement and special operations financed from the Soecial Funds resour::es
referred to in Article 19 of this Agreement The two types of oper3tioDS may be
combined.

Article 10

SEP ..\RATION OF OPERATIONS

I. The ordinary capital resources and the Special F'Jnds resources of :he

Bank shall al all times and in all respects be held. used, commimd. invested or
otherw1se disposed or entirely separately from each other. The financial statements
of the Bank shall show the reserves of the Bank. togerher with ItS ordinary
opHations. and. separately. its special operations.
2. The ordinary capital resources or the Bank shall under no circumstances
be charged with. or used to discharge, losses or liabilities arising out o( speCial
operations or other activities (or which SpeciaJ Funds resources ·,.I.·ere ori~jnali~
used or committed.
.

3. Expenses appertaining directly to ordioa:-y operations shall be charged to
Ihe ordinary capital resources of the Bank. Expense, aRpertaining directt~ to
special operations shall be charged to Special Funds resources. Any other expenses
shall. subject to paragraph I of Article 18 of this Aareement. be charged as the
Bank shall determine.

Article 11
METHODS OF OPERATION
I. The Bank shall carry out irs operations in furtherance of its purpose
and functions 15 set out in Articles I and 2 of this Agreement in any or all of
the following ways:

(i) by making. or co(jnancing together with multilateral instiwrions.
commercial banks or other interested sources. or participating in. loans to privat~
sector enterprises, loans to any state-owned enterprise operating competitively
and moving to participation in the market oriented economy. and loans to any
slate-owned enterprise to facilitate irs transition to private ownership and
control; in particular to facilitate or enhance the participation of private and/or
foreign capital in such enterprises ;
(ii) (a) by investment in the equity capilal of private sector enterprises
(b) by investment in the equity capital of any state~owned enterprise
operating competitively and moving to participation in the market oriented
economy, and investment in the equity capital of any state-owned enterprise to
facilitate its transition to private ownership and control; in particular to facilitate
or enhance the participation of private and/or foreign capital in such enterprises;
and
(c) by underwriting, where other means of financing are not appropriate.
the equity issue of securities by both private sector enterprises and such state
owned enterprises referred to in (b) above for the ends mentioned in that subparagraph;

(iii) by facilitating access to domestic and international capital markets by
private sector enterprises or by other enterprises referred to in subparagraph (i)
of this paragraph for the ends mentioned in that !ubparagraph, through the
provision of guarantees, where other means of (jnancing are not appropriate, and
through financial advice and other forms of assistance:

(iv) by deploying Special Funds resources in accordance with the
agreements determining their use; and
(v) by making or participating in loans and providing technical assistance
for the reconstruction or development of infrastructure, including environmental
programmes, necessary for private sector development and the transition to a
market-oriented economy.
For the purposes of this paragra..,h. a state-owned enterprise shall not be
regarded as operating competitively unless it operates autonomously in a
competitive market environment and unless it is subject to bankruptcy laws.

2. (i) The Board of Directors shall review ~I least annually the Bank's
operalions and lending stralegy in each recipient country to ensure th31 Ihe
purpose and the functions of the Bank, as set out in Articles I and 2 of Ihis
Agreement, are fully .~enled. Any ~ecision pursuant 10 such a review sha/l be
taken by a majority of not less than two-thirds of the Directors, representing
not less than three-fourths of the lotal vOling power of the members.
(ii) The said review shall involve the consideration 0(, inter alia, each
recipient' country's progress made on decentralization, demonopolization and
privatization and the relative shares of the Bank's lending to private enterprises,
to stale-owned enterprises in the process of transition to participation in the
markel-oriented economy or privatization, for infrastructure, for technical
.assistance, and for other purposes.

3. (i) Not more than forty (40) per cent.of the amount of the 8ank's total
committed loans, guarantees and equity investments, without prejudice to its
other operations referred to in this Article, shall be provided to the state sector.
Such percentage limit shall apply initially over a two (2) year period, from the
date of commencement of the Bank's operations, taking one ~ar with another,
and thereafter in respect of each subsequent financial year.
(ii) For any country, nor more than forty (40) per cent of the amount
of the Bank's total committed loans, guarantees and equity investments over a
period or five (5) years, taking one year with another, and without prejudice to
the Bank's other operations referred to in this Article, shall be provided to the
state sector.

(iii) For the purposes of this paragraph,
(a) the state sector includes national and local governments, their
agencies, and enterprises owned or controlled by any of them:
(b) a loan or guarantee to, or equity investment in, a state-owned
enterprise which is implementing a programme to achieve private ownership
and conlrol shall not be considered as made to lhe state sector;
(c) loans to a financial intermediary for on/ending to the private
sector shall not be considered as made to the state sector.

Article 11
LIMITATIONS ON ORDINARY OPERATIONS

I. The total amount o( outstlndinl loans. equity investmentS and guuantees ml:!~
by the Bank in its ordinary operations shall not be increased at 1ny time. If by 5 .. :,
increase the total amount of its unimpaired subscribed capital. reser"e~ lnd ')\,;ri:':~;~S
included in its ordinary capital resources 'would ~e exceeded.

2. The amount o( any equity investment shall not normally exceed ;>J:,
percentage o( the equity capital of the enterprise concerned as shall be determined. ::' '.
a general rule. to be appropriate by the Board or Directors. The Bank shall not seek r:
obtain by such an investment a controlling interest in the enterprise concerned lnd
shall not exercise such control or Ilsume direct responsibility (or managing 1n v
enterprise in which it has an investment. except in the event of actual or thrntened
default on any o( its investments, actual or threatened insolvency of the eoterprise In
which such investment shall have been made, or other situations which, in the opinion
of the Bank. threaten to jeopardize such inveStment. in which case the Bank may t3ke
such action and exercise such right! as it may deem necessary (or the protection of its
interest!.

3. The amount of the Bank 's disbursed equity investments shall not 1t any lime
exceed an amount correspondin, to its total unimpaired paid-in subscribed ';:3DI131.
surpluses and general reserve.
4. The Bank shall not issue guarantees ror uport credits nor undertake inSUf3r:ce
activities.

Aniclt I J

OPERATING PRINCIPLES
The Bank shall operate in accordance with the following principles:
(i)

the Bank shall apply sound banking principles to all its or~raticn:i;

(ii) the operations of tne Bank shall pro\lide for the financing of speclfi~
projects. whether individual or in the context of specific in\lestment programmes,
and for technical assistance. designed to fulfil its purpose and functicns as set out
in Articles I and 2 of this Agreement;
(iii) Ihe Bank shall not finance any undertakIng in tht territory of
member if thaI member objects to such financing;

1

(i v) Ihe Bank shall nOI allow a d isproporlionate am~un t of its resou rees to .
be used for the benefit of any member;
(v)

the Bank shall seek to maintain reasonable diversification iD all its

in\lestments;
(\Ii) before a loan. guarantee or eQuity inv~stment is gl'1nted. the applicant
shall have submitted an adeQuate proposal and the President of the Bank shall ha\le
presented to the Board of Directors a written report regarding the proposal.
together with recommendations. on the basis of a staff study;

(vii) the Bank shall not undertake any (in:ancing. or provide any facilities.
when the applicant is able to obtain sufficient financing or faCilities elsewhere on
terms and conditions that the Bank considen reasonable:
(\liii) in providing or guannteeing rinancinl. the Bank shall pay due
regard to the prospect that the borrower and its guarantor. if any ..... ill be in a
position to meet their obligations under the finanCIng contract;
(ix) in case ')( a direct loan mode by t~.e Bank, the borrower shall be
permitted by the Bank '0 ~raw its funds only to meet expenditure as it is actually
incurred;
(x) the Ban.; shall seek 10 revolve its fund'! by sellin. its investmenLS to
private iovestors whene\ler it can appropriately do :10 on sllis(actory term,! :
(xi) in its iDvestmenLS in individual enterprises. the Bank shall undertake
its rinancinl on terms and conditions which it considers appropriate. takin. into
aCCOUQt the require~enLS or thf. enterprue. the risks beinl undertaken by the
Bank. and the terms and conditions normatly obtained by private investors ror
similar (inaneinl ;.
(xii) the Bank 'hall plaee no restriction upoa the procurement of goods and
serviCe! from IDY country from th, proceeds of lny tOln. investment or other
financing undertaken in the ordinary or special operttions of the Bank. and shall.
in all appropriate eases. make its loans and other operttions conditional on
international invitations to tender being arranaed : lnd
(~iii) the Bank shall take the
procee~ of any toan made. guaranteed

ne(esnry measures to ensure that the
or participated in by the Bank. or any
equity in\lestment. are used only for the purposes for which the loan or the equity
investment wu granted and with due attention to c:onsidel'1tions of economy and
efficiency.

Article 14
TERMS AND CONDITIONS fOR LOANS AND GUARAf'o'TEES

l. In the case of loans made. participated in. or guaranteed by the Bank.
the contract shall establish ~he terms and conditions ror the loan or the auaunlee
concerned, includinl those relatin. to C)ayment of C)rinciC)al. intere~t and other
fees. charges, maturities and dates of payment in respect of the loaD or Ihe
gU3rantee. respectively. In setting such terms and conditions. the Bank shall take
fully into account the need to safeguard its income.

2. Where the reci~jenr of loans Or luarantees of loans i5 not Ilselr 1
member. but is a state-owned enterprise. the Bank may. when it apl)urs desirable.
bearinl in mind the different approaches' appropriate to public and state-owned
enterprises in transition to private ownership and control. require the member or
members in whose territory the project concerned is to be carried out. or a public
agency or any instrumentality of such member or members .c:cel)table to the Bank.
to guarantee the repayment of the principal and the payment of interest and Qther
fees and charges of the loan in accordance with the terms (hereof. The Board of
Directors shall review annually the Bank's practice in this matter, payin, due
attention to the Bank's creditworthiness.
J. The loan or guarantee contract shall e~pressly stlte the currency or
currencies, or ECU. in which all payments 10 the Bank thereunder shall be made.

Arrlcle 1S
COMMISSION AND FEES

The Bank shall charge. in addition to interest. a commISSIOn. on loans
made or participated in aJ part of itS ordinary operations. The lerms lnd
condit~ons of this commission shall be determined by the Board of Directors.
I.

2. In guar3nteeing a loan as part of its ordinary operation,. or In
underwriting the sale of securities. the Bank shall chari! fees. payabl~ at ~3tes
lnd times determined by Ihe Board of Directors. to provide suitable .:ompensation
for its risks.

J. The Board of Directors may determine any other charges of the Bank In
its ordinary operations and any commission. fee!! or other chargts in liS ~peclal
operations.

Artlde 16

SPECIAL RESER VE

I. The amount of commissions and rees received by the Bank pursuant to
Article 1'5 of this Alreement shall be set aside as a special reserve which shall be
kept for meerina the losses of the Bank in accordance with Article 17 of (his
Agreement. The special reserve shall be held in such liquid form as the B;'Ink mal
decide.
2. If the Board of Directors determines that the size of the special restrve
is adequate. it may decide that a1l or part of the said commission or fees shall
henceforth form part of the income of [he Bank.

j,rlicle 17
~IETHODS

or .\IEETING THE

LOSSES Of THE BANK

I In the Bank's ordinary operations. in ClSes of arrears or default on loans
made. participated in, or guaranteed by the Bank, and in cases of losses on
underwriting and in eQuity investment. the Bank shall take such action as it deems
lppropriale. The Bank shall maintain appropriate provisions against pOSSIble losses.
2. Losses arising in the Bank's ordinary operations shall be

c"arged

(i) first. to the provisions referred to in paragraph I of this Article
(ii) second. to net income;
(iii) third. against the special reserve prOVided (or In Article 16 of thiS

Agreement;
(iv) fourth. against its general reserve and surpluses
(v) fifth, aaainst the unimpaired paid- in capital; and
(vi) l15t. against an appropriate amount of the uncalled subscribed callable
capital which shall be called in accordance with the provisions of paragraphs 4 and
S of Article 6 of this Agreement.

Article 18
SPECIAL fUNDS
I. The Bank may accept the administration of Special Funds ..... tll·:h are

designed to serve the purpose and come within the functions of the Bank. The full
cost of administerinl any such Special Fund shall be charged te that Special Fund.
2. Special Funds accepted by the Bank may be used in any manner and on
any terms and conditions consistent with the purpose and the functions "r the
Bank. with the other applicable provisions of this Alreement. and with Ihe
agreement or agreements relatinl to such Funds.

l The Bank shall adopt such rules. and regulations as may be required for
the establishment. administration and use of eaclt Special Fund. Such rules and
regulations shall be consistent with the provisions of this Agteeme!'lt. except {O~
those provisions expressly appJjcable only to ordinary operations of the Bank.

Article 19
SPECIAL FUNDS RESOURCES
The term ·Special Funds resources" shall refer to the resources of any
Spec ial Fund and shall include:
(i)

funds accepted by the Bank for inclusion in any Special Fund;

(ii) funds repaid in respect of loans or guarantees. and the proceeds of
investments. financed from the resources of any Special Fund which, under
the rules and regulations 80verning that Special Fund. are received by sucn Special
Fund and

~Quity

(iii) income derived from investment of Special Funds resources.

Oupttr IV

BORROWING AND OTHER 'fiSCELLANEOtJS PO" ERS

Article 20
GE~ERAL

POWERS

I. The Bank shall have. in addition to the powers specIfied ~Isewhere in
this Agreement. the power to :
(i) borrow funds in member countries or elsewhere. provided llways r"at

(a) before making a sale of its obligations in the territory of
Bank shall have obtained its approval; and

3 COUI'IWI,

:he

(b) where the obligations of the Bank are to be denominated in the
currency of a member. the Bank shall have obtained its approval;
(ii) invest or deposit funds not needed in ill operations;
(iii) buy and sell securities. in the secondary market, which the Bank has
issued or guaranteed or in which it hu in'v'est~d ;
(iv)

guarantee securities in which it hu invested in order to facilitate (heir

sale;
(v) underwrite. or participate in the underwriting or. securatles issued by
any enterprise for purposes consistent with the purpose and functions of the
Bank:

(vi) provide technical advice and assistance which serve it! purpose and
come within its (unctions;
(vii) exercise such other powers and adopt such rules and regulalions a.s
may be necessary or appropriate in further2nce of iu purpose and functions.
consistent with the provisions of this Alreeme nr ; and
(viii) cooclude agreements oC cooperation with any public or private entity

or entities.

2. Every security issued or guaranteed by the Bank shall bear on its face a
coaspicuous statement to the effect that it is noc an obligation of any
Government or member. unless it is in (act the obliaation of a particular
Governmeot or member. in which c~e it shall so state.

ChaplU v
Ct.:RRE1"ICIE5

Mtlde 21
DETERMINATION AND USE Of CURRENCIES

Whenever il shall become necessary under Ihis Agreement 10 det~rmine
whether any currency is fully convertible ror the C)urposu of thIS
Agreemenr. such dererminarion shall be made by Ihe Bank. taking into
account the paramount need to preserve its own financial intl!resu. lfter
consultation. if necessary. with the (nternarional Monetary Fund.
~. Members shall not impose any restrictions on the receipt, ho:::!ing, use or
transfer by the Bank of the following:

(j) currencies or ECU received by the Bank in payment of subscriptions
ils capilal stock. in accordance wilh Article 6 of this Agreement;

(ii)

10

currencies obtained by the Bank by borrowing;

(ji i) currencies and ether resources administered by the Bank as
contributions to Special Funds; and

(iv) currencies received by the Bank in paymeDI on account of principal.
interest, dividends or other charges in respecl of loans or investments. or the
proceeds of disposal of such investments made out of any' 'or the funds
referred to in sub-paragraphs (i) to (iii) of Ihis paralraph. or in payment of
commission. fees or other charges.

(hapltr YI

~rtidt

22

STR l'CTl'RE

The Bank shall ha .. e a Board of Go .. ernors. iI Board ~i Dlrec:ors.
1 ?resldent. ene or more Vlee- PreslC::enu and sueh other oifi;ers l:'1d Staii 15
:nlY be ccr.slde:-ed necessary.

Mllcle 2J
BOARD OF GOVERNORS: COMPOSITION

I. Each member shall be represented on the Board of Governon' and shall
ippoint one Governor and one Alternate. Each Governor and Alternate ~hall
serve at the pleasure of the appointing member. No Alternate ma~ vote
e:\cept in the absence of his or her principal. At each of its annual meetings.
the Board shall elect one of the Governors as Chairman ....·ho shall hold oifice
until the election of the nut Chairman.

2. Governors and Alternates shall serve as such .... ithout remunerttiO:1 froM
Ihe Bank.

~rticlt

24

BOARD Of GOVERNORS: POWERS

I. All the powers of the Bank shall be vested in the Board of Governors

2. The Board of Governors may delegate to the Board of Direc(on lny or
311 of its powers, except the power to :
(i)
(ii)

admit new members and determine the conditions of their admission
increase or decrease the authorized capital stock of the Bank;

(iii) suspend a member;
(jv) decide appeals from interpretations or applicatioQs of this Agreement
given by the Board of Directors :
(v) authorize the conclusion of general agreements for co-operation with
other international organiu(ions ;
(vi) elect the Directors and the President of the Bank:
(vii) determine the remuneration of the Directors and Alternate Directors
and the salary and other terms of the contract of service of (he President;
(viii) approve, after reviewing the auditon' report, the general balance
sheet and the statement of profit and loss of the Bank:
(ix) determine the reserves aDd the allocation and distribution of the net
profits of the Bank;
(x) amend this Agreement;
(xi) decide to terminatt the
assets; and

operation~

of the Bank and to distribute its

(xii) exercise such other powen as 3re expressly assiaDed to the Board of
Governon in this Agreement.

J. The Board of Governors shall retain full power to exercise authority
over any matter delealted or mianed to the Board of Directors under
panlnph 2 o( this Article. or elsewhere in this Alreement.

Article 2S

BOARD OF GOVERNORS: PROCEDURE

I. The Board of Governors shall hold an annual meeting and such oth'!r

meelinls as may be provided for by the Board or called by the Board of
Directors. Meetings of the Board of Governors shall be called. bv the Beard
of Directors. whenever requested by not less than five (S) meombers or t~e
Bank. or members holding not less than one Quarter of the to,al vOllng p0110er
of the members.
2. Two-thirds of the Governors shall cons~itute a Quorum for In\' me~!In;
of the Board of Governors. provided. such majority represents not' less Ina;'
two-thirds of the total voting power of the members.
3. The Board of
whereby Ihe Board
advisable. obtain a
calling a meeting of

Governors may by regulation establish a procedure
of Directors may. when the la"er deems such aC:lon.
vote of the Governors on a specific Quesrion without
the Board of Governors.

4. The Board of Governors. and the Board of Directors to the extent
authorized. may adopt such rules and regulations and establish such
subsidiary bodies as may be necessary or appropriate to conduct the business
of the Bank.

Article 26

BOARD OF DIRECTORS : COMPOSITION

I. The Board of Directors shall be composed of twenty-three (23) members
who shall not be members of the Board of Gover:1vr~, and of whom:

Eleven (II) shall be elected by the Governors I'epres~rt(ing the
Belgium, Denmark. France. Federal Republic of Germany. Greece. !re13nd.
Italy. Lu~embourg. the Netherlands, Portugal. Spain, the Ur.ited Kingdom.
the European Economic Community and the Eurc>pean Inves(ment Bank: and
(i)

(ii)

Twelve (12) shall be elected by the Governors repre::cntifig other
members, of whom:
a) four (4). by the Governors representing those count.ies lis(ed in
Annex A as Central and Eastern r;jrope~r. rountries
eligible for assistance from the Bank ~
b) four (4), by the Governors representing those countries listed
in Anne~ A as other European countries;
c) four (4), by the Gover:1ors r~presenlinB those countries listed in
Annex A 3! non- Eu!'opean c.)untries.

Directors, a~ well as rep:esi:!"Iting m":iTlber5 whose CC'/E':ncrs ha\.e
elected them, may also repre~,e~H r.~embers who assign their VOlt'S to them.
2. Directors shall be persom of high competence in economic and financial
matters and shall be elected in accordn'1::e with Annex B.

3. The Board of Governors may incrc:!o:e or decrease the .:;ize. or revise the
composition. of the Board of Director!, ;!! erder ';1) take into a~;:ount d;~~8es
in the number of memcer!> of t~ .. Ran l :, t,y an afliimatj\'p, vote of 'lot less
than two-thirds of the Goverr.:>rs. represetit;ng n<'lt less than three-icur~hs or
the total voting power of the members. Wil~out prejudice to the exercise of
these powers for 5u"sequent elections, the number and composition of the
second Board of [iirec;("f$ shall be as set out in Plrag:3ph I of this Article.
4. Each Director shall appoint an Alternate with full power to act (or him
or her when he or sh~ is not present. Directors and Alternates shall be
nationals of member countries. No member shalJ be represented by more
than one Director. An Alternate may participate in meetings of the Board
bur may vote only when he e:r she is acting in place of his or her principal.
S. Directors shall hold office for a term of three (3) years and may be
reelected; provided that the fi;-st Boald of Directors shall be elected by the
Board of Governors at its inaugural meeting. and shall hold office until the
next immediately following annual meeting of the Board of Governors or, if
that Board shall so decide at that annual meeting, until its next subsequent
annual meeting. They shall continue in office until their successors shalt have
been chosen and assumed of rice. If the office of a Director becomes vacant
more than one hundred and eighty ( J 80) d3ys before the end of his or her
term, a successor shall be chosen ·~n accordance with Annex B. for the
remainder of the term, by the Governors who elected the former Director. A
majority of the votes cast by such Governors shall be required for such
election. If the office of a Director becomes vacant one hundred and eighty
(180) days or less before the end of his or her term, a succes')or may
similarly be choser. for the remai.,der of the term, by the votes cast by such

Governors who elected Ihe former Director. in '. . hic:h election

1 mlJt:)"I',

)1

the \ores :l!t by 5ueh Governors shall be required, While the or'rice ~!mJlns
vaeln!. the .J,llern3te of Ihe former Direclor shall e~ercise Ihe powers »)' '.~e
latter. e~cept that of lppointin8 an Alternate,

Arlide 27

BOARD OF DIRECTORS

POWERS

Without prejudice to the powers of the Bc,ard of Governors as pro"jde,j ~n
Article 24 of this Agreement. the Board of Dm~ctor~ shall be respVn~ib'e fc,r
the direction of the general o~eralions of the Bank and. rer !~is PIJ~oose.
shall. in addilion to the powers assigned 10 il expressly by thi .. 1"\1t·.~e:-:!er.t.
eurcise all the powers delegated to il by the Board of Go\.~rrl'::-~l. ~nd ,n

particular:
(i) prepare the work of the Board of Governors :
(ii) in conformity with the general direction! of the Board of Go"ernofS.

establish policies and take decisions concerning loans. Buarantees. i,"eslmentS
in equity capital. borrowing by the Bank. the (urnishitle of reC.,niCl!
assistance. and other operations o( the Bank:
(iii) submit the audited accounts for each financial year for approval of
the Board of Governors at each annu::1 meeting; and

(iv) approve the budget of the Bank.

Article 28
BOARD OF DIRECTORS : PROCEDURE

I. The Board of Directors shall normally function at tht principal office oi
the Bank and shall meet a.5 orten as the business of the Bank may require.

2. A majority of the Directors shall constitute a Quorum for lny meeting
of [he Board of Directors. pro\lided such majority represents no~ Itss thln
two-thirds of the total \loting power of the members.
3. The Board of GO\lernors shall adopt reaularions under .. hien. if Ihere IS
no Director of its nationality, a member may send a representat;,e to attend.
without right to \lote. any meetin. of the Board of Directors wh~n a matter
particularly affecting that member is under consideration.

\'CTi~G

I. The voting power of e1ch member sna 'j i:~ e~l!al 10 the .,umt-~r of 'IS
subscribed shares in the capital stock of the Bank, In lhe even' of an~ memcer
failing to pay any pan of the amount due In respect of its obligatives ir;
re.1ation to paid-in shares under Article 6 of this Agree:nent. :uc!t member
shall be unable for so lona :l! such failure continues to uerci:;t fliaf ;>ucer;f3~f'
of its voting power ""hich corresponds to t~,e percentage ""hi.:" ii'.~ 3~OI;~f
due but unpaid bears to the total lmOunt of paid-in shares 5ub1c~ibed I": ~'!
that member in the capital stock of the Bank.

2. In voting in the Board of Governors. each Govt(nor

~hal! ~·e fnli:i,.d

II)

votes of the member he or she represenu, i: :z:.:ec:t ~ o~her .. ISo:.
expressly provided in this Agreement. all tn"tt'!rs b'!fore '.he SOMe 'J!'
Governors shall be decided by a majority of tbe "ljting po ..... er (.~ :~f rner.:ter!
voting.
CUt the

3. In voting in the Board of Directors each Director s!\all be entitled to ClSt
the number or votes to which the Governors who have elected him or her are
entitled and those to which any Governors who have auianed cheir VOtes Co
him or her. pursuant to ~ctio" 0
Annex B. are entitled. A Director
representing more than one member may C:1St sepuately the votes of the
members he or she rep:,esen~. Ex.ceot :l! other·.uise expressly provid!d in thIS
Agreement. and exc:~~t for senera: policy dec;sions in Which ::a.ses such polic~
decisions shall be tak~n toy a maj:>rity or not less t~an two- thirds or the lOlal
voting "ower of the members "''''fir,g. all mattt.r1 befcr'! Ine Board of DirecIois
shall be decided by ~ majority of the voting po ..... er oi thl!: members voting,

or

-"'rtlclt 30

THE PRESIDENT
I. The Board of Governors. by a vote of a majority of the lotal number of
Governors. rel'resenting not less than a majority of the total voting power of
the members. shall elect a President of the Bank. The President. wtllle
holdinl office. shall not be a Governor or a Director or ar. Alternatt :"or
either.

2. The term of office of the President shall be four (4) years. He or sh~
may be re-elected. He or she shall, however, cease to hold office ..a.hen !~I!'
Board of Governors so decides by an affirmative vote of not less than t~o­
thirds of the Governors, representing not less Ihan Iwo-thirds of the (0:31
votina power of the members. If the office of the President for any r~as~n
becomes vacant. the Board of Governon, in accordante with the pro . . isions'
of paralraph I of this Article. shall elect a successor for up to four yurs.
l The President shall not vote. except that he or she may cast a deciding
vote in case of an eQual division. He or she may particiPlte in meetings of
the Board of Governors and shall chair the meetinl' of the Board of
Directors.

4. The President shall be the lelal rel'resentalive of the Bank.
S. The President shall be chief of the slarr of the Bank. He or she shall be
responsible for the organisation. appointment and dismissal or the officers
and staf{ in accordance with regulations to be adopled by the Board of
Directors. In appointing officers and staff. l'Ie or she shall, subject to the
paramount importance of efficiency and technical competence, pay due
regard to recruitment on a wide geographical basis amonl members of the
Bank.

6. The President shall conduct, under the direction of the Board of Dirf!ctors.
the current business of the Bank.

Article

J1

VtCE PP ESIDENT (5)

I. One or more Vice-Presidents shall be ~DPointed by Ihe Board,:"
Directors on the recommendatlo:\ of the Pre~iaf'nt. A Vice-President ~h3!1
hold office for such term. exercise such 3uthcrity and perform S:JC~
functions in the administration of the B.n.(, as may be delerrnjneC; by tho!
Board of Directors. In the absence or incapacity of the P:--,:! Ident. 3 V icePresident shall exercise the authority and perform !I:e fiJ~ction5 -:"r tht
President.

2. A Vice-President may particIpate in
but shall have no vote at such meetings,
deciding vote when acting in place of the

m.e~tin~~ -:f th~ f<ouci
ex:e;;~ (t.ci
or ~r.e
Pf~!i1~~'H.

r.e

:;( O;re":LJi5
may ':'lSt the

"rtlcle 32
INTERNATIONAL CHARACTER OF THE BANK

I. The Bank shall not accept Special Funds or other loar.! at assistance that
may in any way pr~judj:e. d~neCl or r:lth!i ...... ise alter i~ purpose or functio:ls.
2. The Bank, its Pr~s:d!'nt. Vil't.-Presidu.t (~). officers 3nd staff shall in
their decisions take ir.!o a,cou~t :inly cunslje~ations r~ie·-~,~l to the Bank's
l"!~ .A.~retm!nt. Sucr.
purpose, functions and !)pe(!tion~, ~ <tt cut in
considerations sh;.11 be wE!$hed impaniaily ;~ ord~r to a·:n:~ve and carry ')ut
the purpose and ~unctions cf th~ Bani<.
3. The President, Vice- President(s), office~s and stlff oi the Bank. in the
discharge of their ~ifkes. snaIl owt their diJl)' ent:Tel] to Ih~ Sank and to no
other authority. Each m~r~be~ ~f tM e3:-.~ shall :~!li'~et the irm:rnational
character of this d\i~, an::! ~hoi: :!f1~:t. from ._~! at~l"'l,;:-tl :0 Id1~lenC! 1/'ly or
them in the disCh3:g~ ~f 'heir d:h:":

Article JJ
LOCA TJON OF OFFICES
I. The principal office of the Bank shall be located In ...... .

2. The Bank may establish agencies or branch offices in the territory of
lny member of the Bank.

Article 34
DEPOSITORIES AND CHANNELS Of' CO~iMU~ICA nON

I. Each member shall designate its centra! bank. or such other InHHu!~c·n
as may be agreed upon with the Bank. as 1 depository for all the Banx's
holdings of its currency a.s well a.s other asset! of the F,;nlr..
2. Each member shall designate an apprc·priate ofricial
the Bank may communicate in connection ~ ith any maHt~
Agreement.

t;'}ll~:

'4

h::h

!f1Slng ~n<1~r

th!s

'.;,'i'h

Article JS

PL'BllCATION OF REPORTS AND PROVISION OF INFOR,\fATlO ....

I. The Bank shall publish an annual report conlaining an 3udited SIlu:men{
o( its accounts and shall circulate to members at intervals of three (J) months
or less a summary statement of itS rinancial position and a profit and IOS5
scatement showln, the resulu of its operations. The financial a-:counts ,hall
be kept in ECU.

2. The Bank snail report annually on the environmental Impact of Its
activities and may publish such otner reporu as it deems desirable to ldvan:e
its purpose.

3. Copies of all reports. statemenu and publications made under (h:s
Article shall be distributed to members.

Mtidt 3~

ALLOCATION AND DISTRIBUTION OF

~ET

INCOME

I. The Board of Governors shall determine at leas~ annually .... har ca:t of
the Bank's net income. after making provisiN' for reserve~ and. if n-!,C~5sary.
19ainst possible losses under paragraph I of Article i 7 of thlS~ &r~!i.1er:!.
shall be allocated to surplus or other purposes and ..... hat part. if M,\'. ~!".aq ce
distributed. Any such decision on the allocation of the Bank'~ net inl,.om~ tc
other purposes shall be taken by a majority of not less than tllolo-rhirds of the
Governors. representing not less than two-thirds of the: (Ot .. : "I)fing ?o .... er cf
the members. No such allocation. and no distributien. ~h;:11 b~ :n::.~e ... nti! !n~
general reserve amounts to at least ten·(I0) per eent of the a~thcr;!~.:~ c:;pita!
stock.
2. Any distribution referred to in the preceding pararraph shall be made an.
proportion to the number of paid-in shares held by each member: provided
that in calculating such number account shall be taken only of paymen(s
received in cash and promissory notes encashed in respect of such shares on
or before the end of the relevant financial year.
3. Payments to each member sha:1 be made in 5uch manner as (h~ Board oi
Governors shall determine. Such payments and their use Coy th·! recei·.ing
country shall be without res!:iction by any member.

Chapter VII
WITHDRAW AL ..\~D SUSPENSION OF "tE~tBERSHIP :
TEMPORARY SUSPENSION AND TERMrNATION OF OPERA nONS
Article 37

RIGHT OF MEMBERS TO WITHDRAW

I. Any member may withdraw from the Bank at any time by !ransmitting
a notice in writina 10 the Bank at its principal office.

2. Withdrawal by a member shall become effective. and its membershiD
shall cease. on the date specified in its notice but in no event less than SI~
(6) months after such notice is received by the Bank. However. 11 any tIme
before the withdrawal becomes finally effective. the member may notlf~ the
Bank in wrilina of Ihe cancellation of its notice of intention 10 withdraw

Arllcle 38
SUSPENSION OF ~fE~tBZRSHIP

I. If a member fails to fulfil any of its o::lligations to tlte ean~. (br. !hnio:
may suspend its membership b~ decision or a majority of not !eH :h~.-; (NOthirds of the Governors, representing not I'!ss than two-thirds Ji :h! t'J::!!
voting power of the members. The member so suspended 51-'ali aut?r::a:.cl;::
cease to be a member one year from the date of its suspension IJr.l~ss l
decision is taken by not less than the same majority to reHOr! th~ ;7H'rr,!'Je~ :r:.
good standing.

2. While under suspension, a member shall no' be entitl~a '.C ~xt'r,:se ,1.'1;
rights under this Agreement, except the righi c( w,(hdn""4i, but shall rerr,Zlr.
subject to all its obligations.

Article 39

SETILEMENT OF ACCOUNTS WITH FORMER MEMBERS
I. After the date on which a member ceases to be a member. such former
member shall remain liable for its direct obligations to the Bank and (or its
contingent liabilities to the Bank so long as any part of the loans. equity
investments or guarantees contracted before it ceased to be a member are
outstanding; but it shall cease to incur such lial,)ilities "",ith respect tl) loans.
equity investments and guarantees entered into thereafter by the Bar.x and to
share either in the income or the expenses of the- Bank.
2. At the time a member ceases to be a member, the Bank shall 3rrJng~ f():
the repurchase of such (ormer member's 1hares 3.$ a part of the \eulement of
accounts with such former member in accordance with the provisions 0: Ihis
Article. For this purpose, the repurchase price of the shares shali be the
value shown by the books of the Bank on the date of t;es~;ltion of
membership, with the original purchase price of each share being its
maximum value.
3.The payment for shares repurchased by the Bank under this Article shall
be governed by the following conditions:
(i) any amount due to the former member for its Sh~Ht'S shall be
withheld so long as the former member, its central bank or any of Its
agencies or instrumentalities remains liable, as torrower or guarantor. to (he
Bank and such amou nt may, at the option of the Bank, be applied on any
such liability as it matures. No amount shall be withheld on account of the
liability of the former member resulting from ils subscription for shares in
accordance with paragraphs 4, 5 and 7 of Article 6 of this Agreement. In any
event, no amount due to a member for its shares shall be paid until si~ (6)
months after the date upon which the member ceases to be a member;

(ii) payments for shares may be made frem
surrender by the former member, to the extent by
the repurchase price in accordance "",ith paragraph
the aggregate amount of liabilities on loans,
guarantees in sub-paragraph (i) of this paragraph
has received Ihe full repurchase price:

time to timt', IJPon their
which the amount due 3S
2 of this Articlt- e,ceed~
equity investments and
until the former member

(iii) payments shall be made on such ccnditions and in such fully
convertible currencies, or EeU, and on such daces, as Ihe Bank determines:
and
(iv) if losses 3re sustained by the Bank on any guarantees, participations
in loans, or loans which were outstanding on the date when the member
ceased to be a member, or if a net loss is sustained by the Bank on equity
investmenlJ held by it on such dale, and the amount of such losses exceeds
the amount of the reserves provided a8ain5t losses on the date when the
member ceased to be a member, such former member shall repay, upon
demand, the amount by which the repurchase price of iu shares would have
been reduced if the Josses had been taken into account when the repurchase
price was determined. In addition, the former member shall remain liable on
any call (or unpaid subscriptions under paragraph 4 of Article 6 of this
Agreement, to the extent that it would have been required to respond if the
impairment of capital had occurred and the call had been made at the time
the repurchase price of its shares was determined.

4. If the Bank terminates its operations p~nU3n~ ro A\rticle 41 of rhis
Agreement within six (6) months of the date upon wh:.:h :iilY mem:·er Ce:1~f'5
to be a member, a/l rights or such former member shall be dctHmined in
accordance with the provisions of Articles 41 to 4) of this Aj2reement.

Article .. 0

TBIPORARY SL'SPENSION OF

OPER"TlO~S

In an emergency. the Board of Directors may suspend temporarilv
operations in respect of new loans, guarantees, underwriting. technIcal
'assistance and eQuity inllulmen', pendin. an opportunity rer further
comideration and aelion by the Board of Governors,

T£R.'flNA TlON OF OPERA nONS

The Bank may terminate its operations by the affirma!ive V;)le of Ilot le>s
than two-thirds or the GO\lernors. representin, not less than {;H!e-(cunhs
of the total votina power of the members. Upon such (e·~;na~jon of
operations the Bank shall forthwith cease all activities. e:c":r::.{ t'1(,$" ;~~;:je"l
to the orderly realization. conservation and preservation of j'5 ~stt:: ~ n1
settlement of its oblilations,

.~rflclt

LIABILITY OF

~'BfBERS

42

AND PAYMENT OF CLAIMS

I. In the event of terminatIon of the operations of the Bank. the liab:llt ...
of all members for uncalled subscriplions I) the capital Stock of the Bank
shall continue until all claims of creditors. including all contingent :Ialms.
shall have been discharged.
2. Creditors on ordinary operations holding direct claims shall be paId first
out of the a.ssets of the Bank. secondly OUI of the payments to be made to
the Bank in respect of unpaid paid-in shares. and then OUI of payments :0 b~
made to the Bank in respect of callable capilal stock. Before making In,
payments to creditors holdin. direcI claim!!. the Board of Directors shall
make such arrangements as are necessary. in its judgment. to en5ure 1 rro
rala distribution among holders of direct and holders of continge~t claIms.

Article ,,3

DISTRIBUTION Of ASSETS
I. No distribution under Ihis Chapter ~hall ce made ~o me;nters .:r.

of their sub$criPtions to the c:lpltal Slock of the Bank IInnl •
(i)

111 liablities

10

creditors have been discharged or provid'!:"3

~,

f

(ii) the Board of Governors has decidec by I vote of nOI !e~~ ~hll:
thirds of the Governors. representina not less than three-fourths r;-.r tlj~
votina power of the members. to make a distribution.

'.'/0·

'Ot,,;

2. Any distribution of the assets' or the Bank to the memt-trs ~1\3 I t-~ :n
proportion to the capital stock held by eac~ member and Sh2l~ ":"e ... rf~l'tt'd at
such times and under such conditions ~ ll'il! Bank shall c ~~~" faIr )"::!
equitable. The shares of assets distributed nted not ~e unIform as t:; ~n;e cf
assets. No member shall be entitled to recel\le it!: share in su.:h a d:!tr:bu:ion
of assetS until it has settled all of its obliaa[ions 10 the Bank.
3. Any member receiving assets distributed pursuant to this Article shall
enjoy the same rightS with re~pect to such assets u the Bank enjoyed prior
to their distribution.

Chapter VIII
5TATVS. IMMUNITIES. PRIVILEGES AND EX[~fPTIONS

Article

.u

PURPOSES OF CHAPTER

To enable the Bank to fulril its purpose and the functicns with which it IS
entrusted. the status. immunities. privileges and exemDtions set forth in chis
Chapter shall be accorded to the Bank in the territory of each memCer
country.

Article 4!
ST ATUS OF THE BANK

The Bank "hall possess rull legal personality and. in particular. :i':: ;' .. 11
legal .:apacity :
(i) to eontract;

(ii) to acquire. and dispose of. immovable and movat·l~ =-rvcer~v :

(iii) to instilute legal proceedings.

111

Mtlclr "6
POSITION OF THE BANK WITH REGARD TO Jt:DICIAl PROCESS
Actions may be brought against the Bani< only in a court of competer.t
jurisdiction in the territory of a country in which the Bank has an oifice.
has appointed an agent for the purpose of accepting service or notice 'JI
process. or has issued or guaranteed securities. No actions shall. ho ....'ever. ~e
brought by members or persons acting ror or derivin8 claims from members.
The property and assets of the Bank shall, wheresoever located and b!
whomsoever held. be immune from all forms of seizure. lnacnment ·)r
e~ecution before the delivery of final judgment against the Bank.

Article ,,7
IMMUNITY OF ASSETS FROM SEIZURE

Property and assets or the Bank. wheresoever located lnd by .... ~or:'~.)e ,.. e~
held. shall be immune from search. reQuisition. confiscation. eJ;c:optl PIC,., :Jr
lny other form of taking or foreclosure by executive or legislat .... e lC:lur.

Article 41
(\tMU:'-iITY OF ARCHIVES

The archives or the Bank. and in general all documents belonging to
held by il. shall be inviolable.

It

or

Article .49

FREEDOM OF ASSETS fROM RESTRICTJO~S

To the extent necessary to carry out the purpose and functior.s .:.(
the Bank and subject to the provisions of this Agreement. all property lr.j
ISsers of the Bank shall be free from restrictions, regulations. -:ont!cis lnd
moratoria of any nature.

Arlicle 50

PRIVILEGE fOR

COM~1U~IC'\ TIONS

The official communications of the Bank shall be accorded by ~ach
member the same treatment that it accords te the official communiCl:ions oJi
ln~ other member.

Article S I
I~IMVNITIES

OF OfFICERS AND

E~tPLOYEES

All Governors. Directors, Alternates. o((ic~rs and employees of the Bank
and eltpertS performing missions for the Bank shall be immune (rom tegll
process with respect to acts performed by them in their offici31 ;apacw-.
eltcept when the Bank waives this immunity, and shall enjoy invIolability cf
all their official papers and documents. This immunity shall not apply.
however, to civil liability in the case of damage arising from 1 road Iraific
3cc:ident caused by any such Governor, Director, Alternate. officer. emplo~e-!
or eltpert.

Article 52
PRIVILEGES OF OFFICERS AND E~fPLOYEES
I. All GOl/ernors. Directors. Alternates. oHicers and employees of :hl!
Bank and expertS of the Bank performing missions for the Bank

(i) not being local nationals, shall be accorded tht same
immunities from immigration restrictions. alien registration requjrem~nt5 lr.d
national sen/ice obligations. and the same facilities as regards exchange
regulations. as are accorded by members co che representatives. official!. and
employees of comparable rank of other members and
(ii) shall be granted the same treatment in respect of rravelling

facilities as is accorded by members to representative!,
employees of comparable rank of other members.

offjci31~

3nd

2. The spouses and immediate dependanu of those Directors, Alternate Directors.
officers. employees and experu of the Bank who are resident in the country :n
which the principal office of the Bank is localed shall be accorded opportunity .0
take employment in that country. The spouses and immediate dependants of those
Directors. Alternate Directors. officers. employees and experts of the BaDk who 3re
resident in a country in which any agency or branch office of the Bank is loclted
should. wherever possible. in accordance with the national law of that country. be
accorded similar opporrunity in that country. The Bank shall negotiate sp~clfi:
agreements implementing the provisions of this paragraph with the country :n
which the principal office of the Bank is located and. as approprrate. '41th th~
other countries concerned.

Article 53
EXE~tPTlON

FROM TAXATION

I, Within the scope of its official activities the Bank, its :usets, properly. ar:d l;'l':':r.~
shall be exempt from all direct taxes.

:. When purchases or services of substantial value and necessary for the e,(er~;s~ :i ,-.~
official activities of the Bank are made or used by the Bank and ..... h~n the :;r . .:e : r
such purchases or services includes taxes or duties. the member that has !e .. i~d .:-.~
taxes or duties shall, if they are identifiable, take appr01'riate measure5 10 srJrH
e:c.emption from such tues or duties or to provide for their reimbursement.

3. Goods imported by the Bank and necessary for the exercise o( its official activities
shall be uempt from all import duties and taxes, and from all import prohibiticns lnd
restrictions. Similarly goods uported by the Bank and necessary for the exercise of its
official activities shall be uempt from all export duties and tues. and from ail expert
prohibitions and restrictions.
~. Goods acquired or imported and exempted under this Article shall not be sold. hired
out. lent or given away against payment or (ree of charge, except in accordance wllf)
conditions laid down by the members which have granted eump(ion~ )r
reimbursements.

S. The provisions of this Article shall not apply to tues or duties. which are no more
than charges for public utility services.

6. Directors. Alternate Directors. officers and employees of the Bank shall be sub,iect
to an internal effective tax ror the benefit of the Bank on salaries and emoluments :'laid
by the Bank. subject to conditions to be laid down and rules to be adopted by the
Board of Governors within a period of one year from the date of entry into force of
this Agreement. From the date on which this tax is applied, such salaries and
emoluments shall be exempt from national income tax. The members may. ho . . . e . . er.
take into account the salaries and emoluments thus exempt when assessinl the amount
of tax to be applied to income from other sources.
7. Notwithswdinl the provisions of pananph 6 of this Article. a member may
depotit, with iu instrument of ratification. acceptance or approval, a declaration that
such member retains (or iuelf. its political subdivisions or iu loeal authorities the right
to tu saJuies and emoluments paid by the Bank 10 citizens or nationals of such
member. The Bank shall be exempt (rom 'Of oblilltion for the payment. withholding
or collection o( such' taxes. The Bank shall not make Iny reimbursement for such
taxes.

8. Paraaraph 6 of this Article shall not apply to pensions and annuities paid by the
Bank.
9. No tax of any kind shall be levied on any obliaation or security issued by the Bank.
including any dividend or interest thereon. by whomsoever held:

(i) which discriminates alainst such oblialtion or security solely because it is issued by
the Bank, or

(ii) ir the sole jurildictional baSIS for such t3~ation is the place or :urr!nc:, In -I.~.:" .
IS issued. made p3}able or paId. or the location of lny oifice or ~IJ.:e ·.r· .. : -~:;
maIntained by the Bank.
10. No tax of any kind shall be levied on any obliaation or security guannteed
Bank. including any dividend or interest thereon. by whomsoever held'
which discriminates against such obliaation or security sclely
guaranteed by Ihe Bank. or

(i)

~

.. -~

bec3us~

(ii) if the sole jurisdictional basis for such tuation is the locatIon of any oifi:e :r
place of business maintained by the Bank.

Article 54
IMPLE~fE~T A TlON

OF CHAPTER

Each member shall promptly take such aCHon as is necessary ror the
purpose of implementing the provisions of this Chapter and shall inform the
Bank of the detailed action which it has taken.

Arllele 5S

WAIVER Of IMML'NITIES. PRIVILEGES AND

EXE.\fPTIO~S

The immunities. privileges and exemptions conferred under this Chapter lre
granted in the interest of the Bank. The Board of Directon may wai·.. e :c
such extent and upon such conditions as it may determine any of the
Immunities. privileges and exemptions conferred under this Chapter in .:~e5
wllere such action would. in its opinion. be appropriate in [he best inlerest5
of the Bank. The President shall have the riaht and the dUlY to ""'31"'e lOy
immunity. privilege or uemption in respect of any officer. empio\ee "r
expert of the Bank. other than the President or a Vice-President. where. :11
his or her opinion. the immunity. pri'vileae or exemption would imoede the
coune of justice and can be waived without prejudice to the i"tere~:s oi [~e
Bank. In similar circumstances and under the same conditions. [he Board oi
Directors shall Ilave the riaht and the duty to waive aC\y immunity. prl" liege
or exemption in respect of the President and each Vice PreSIdent.

Chapter IX
AME~DMENTS.

INTERPRETATION. ARBITRATION

Article 56
Ameadmeats
I. Any proposal to amend this Agreem~nt. whether emanarina frem 1
member. a Governor or the Board of Directors. shall be communicated ~c ;n!
Chairman of the Board of Governors who shall brina the proposal befa: I!'
that Board. If the proposed amendment is approved by the Board th~ Bank
shall. by any rapid means of communication. ask all members ·,whether the:.
accept the proposed amendment. When not less than three-fourths oi :r.e
members (including at least two countries from Central and Eastern Eurcpe
listed in Annex A). having not less than four-fifths of the total "'ocing po~er'
of the members. have accepted the proposed amendment. the Bank shall
certify that fact by formal communication addressed to all members.
2. Notwithstandinl paragraph I of this Article:
(i) acceptance by all members shall be required in the case of any
amendment mOdifying:

(a) the right to withdraw from thr. Bank;
(b) the rights pertainina to purch:ue of capital stock provided for
in paragraph 3 of Article S of this Aareement ;
(c) the limitations on liability provided for in paragraph
Article S of this Agreement; and

~

of

(d) the purpose and functions of the Bank defined by Articles
and 2 of this Agreement;
(ii) acceptance by not less than three-fourths of th~ mem~ers
havinl not less than eighty-five (85) percent of the total voting power of the
memben shall be required in the case of any amendment modif~ing
panarapb 46 of Article 8 of thi! Aareement.

WheD the reQuiremenu for accePtinl any such proposed amendment ha"'e
beeD met, the Bank shall certify that fact by formal communication
addressed to all members.
3. Amf.ndmenu shall enter into force for all members three months after
the date o( the formal communication provided (or in panlnphs I and 2 of
this Article unless the Board o( Governors specifies a different period.

"\rticle 57

INTERPRET,.\ TION AND APPLICA TlON

I. Any Question of interpretation or appli~ation of the provisions of rh i~
Agreement arisinl between any member and the Bank. or bt'tween li1V
members of the Bank. shall be submitted to the Board of Directors fer Its
dt'cision. If there is no Director of its natioulity in that Boarel. a :-r.emtler
particularly affected by the Question under consideration shail ~~ entitled 'l'
direct representation in the meeting of the Board of Directors d'Jring such
consideration. The representative of such member shall. howe'ver. 11I·.e no
vote. Such right of representation shall be regulated by the Board :1/"
Governors.
2. In any case where the Board of Directors has given a decision under
paragraph 1 of this Article. any member may requir~ that the Question t-e
referred to the Board of Governors. whose decision shall be finaL Pending
the decision of the Board of Governors. the Bank may. so far as it deems it
necessary. act on the basis of the decision of the Board of Directors.

Article

S'

ARBITRATION
If a disagreement should arise between the Bank and a member "",·hlt:n has
ceased to be a member. or between the Bank and any member after adoption
of a decision to terminate the operations of the Bank. such disagreement
shall be submitted to arbitration by a tribunal of three (3) arbitrators. one
appointed by the Bank. another by the member or former rr.emb~~
concerned. and the third. unless the parties otherwise agree. by the President
of the International Court of Justice or such other authority as mly "a',e
been prescribed by regulations adopted by the Board of Go . . e~nfjr5 -\
majority vote of the arbitrators shall ·be sufficient to reach a decision w!'\jch
shall be final and binding upon the parties. The third arbitrator shall n'.l· e
full power to settle all questions of procedure in any case where rhe ,aru!)
are in disagreement with respect thereto.

Article 59

APPROV AL DEEMED G[VEN
Whene\ler the appro\lal or the acceptance of any member is required before
any act may be done by the Bank. except under Article 56 of this
Agreement. appro\lal or acceptance shall be deemed to have been gi\len
unless the member presents an objection within such reasonable period as (he
Bank may fix in notifying the member of the proposed act.

Chapter X
FINAL PROVISIONS

Article 60
SIGNATURE AND DEPOSIT

1. This Agreemenl. deposiled with the Governmenl o( .... ( herein3fter \:3l1ed
the Depository • ). shall remain open un Iii 31 December 1990 fer
signature by the prospective members whose names are set forth in Annelt A
to this Agreement.
2. The Depository shall communicate certified copies o( this Agreement
the Signatories.

!O 111

Article 61

RATIFICATION ...~CC[PTANCE OR APPROVAL

I. The Agreement shall be subject to ratiiic3tion. acceptance c: 1D(')i o .. al b !":
Signatories. Instruments of ratiiication. acceptance or aptH?val sha!;. ;ubje-:I ':
paragraph 2 of this Article. be deposited with the Depository not laler t'nn
31 March 1991. The Depository shall duly notify the other Signa!ories 01 :!J;~
deposit and the date thereof.

2. Any Signatory may become a party to this Agreement by dt'O'")~!fI:"~ l i
instrument of ratification. acceptance or approval until one year after (t'.e ·j3le "i! I:;
~ntry into force or. if necessary. until such later date as may be decj(~ed ~~ 1
majority of Governors. representina a majority of ~e tetal .. .,ting 'o .... er ~,. ::i~
members.
3. A Signatory whose instrument referred to in paraaraph 1 of Ihis Article is
deposited before the date on which this Aareement enters into force shall become 1
member of the Bank on that date. Any other Sianatory which complies with the
provisions of the preceding paragraph shall become a member of the Bank on the
date on which Its instrument of ratification. a:ceptance or approval is deposited

ENTRY INTO fORCE

I. This Aareement shall enter into force .... hen instruments of ratifICllic"',
acceptance or approval ha"e been deposited by Signatories ....·hose initial
subscriptions represent not less than two thirds of the total subsc~iptjons je:
forth in Annex A. includina at least two countries from Central and Eastern
Europe listed ;n Annex A.
2. If this Agreement has not entered into force by 31 March 1991. the
Depository may convene a conference of interested prospective members to
determine the future course of action and decide a new date by which
instruments of ratification. acceptance or approval shall be deposited.

Article 63
INAUGURAL "EETING AND COMMENCEMENT Of OPERA TlO~S
I. As soon a.s this Agreement enters into force under Article 62 or this
Agreement. each member shall appoint a Governor. The Depository shall '::311
the first meeting of the Board of Governors within sixty (60) days of entry
into force or this Agreement under Article 62 or a.s soon a.s possIble
thereafter.

2. A tits nrst meeting. the Board of Governors :
(i) shall elect the President;

(ii) shall elect the Directors of the Bank in accordance with Article :6 of
this Agreement;
(iii) shall make arrangements for determining
commencement or the Bank's operations; and

the

date

of

the

(iv) shall make such other arranlements a.s appear to it necessary to
prepare for the commencement or the Bank's operations.

3. The Bank shall notify its members or the date or commencement or its
operations.
Done at ..... on ... in a sinale original, whose English, French. German and
Russian texts are equally authentic, which shall be deposited in the archives
or the Depository which shall transmit a duly certified copy to each of the
other prospective members who.se names are set forth in Annex A.

ANNEX A
Initial subscriptions to the authorized ca~ital stock for prospectl~e
members which may become members in acccrdance with Article ~l

NUMBER
OF
A -

CAPITAL

SHARES

SUBSCP I FT ='J~;
in ml::i:n :.C':

Belgium
Denmark
France
Germany, Federal Republic of
Greece
Ireland
Italy
Luxembourg
Netherlands
Portugal
Spain
United Kingdom

22800
12000
85175
85175
6500
3000
85175
2000
24800
4200
34000
85175

228,00
120,00
851,i5
851,7S
65,00

European Economic Community
European Investment Bank

30000
30000

JOO,OO

22800
1000
12500
1000
6500
200
100
12500
22800
22800
11500

228,00
10,00
125,00

European communities

a)

J 0, 'JO
851,75
20,00
248,'jO
~2,OO

34 0,00
851,iS

b)

B -

3('0,00

Other European countries
Austria
Cyprus

Finland
Iceland
Israel
Liechtenstein
Malta
Norway
Sweden
Swit~erland

Turkey

10,00
65,00
2,00
1,00
125,00

228,00
228,00
115,00

Recipient countries
Bulgaria
Czechoslovakia
Gennan Democratic Republic
Hungax'y
Poland
Romania
Union of Soviet Socialist Republics
Yugoslavia

7900
12800
15500
7900
12800
4800
60000
12800

-9,:lO
123.JO
,--

-

~::>

, ....-'1"\_.

79,~0

1. =:
~

a , ~ ':
a
I

:')

6CI),CO
129.00

Non-European countries
Australia
Canada
Egypt
Japan
Korea, Republic of
Mexico
Morocco
New Zealan·:i
United states of America

10000
3:'000
1000
85175
6500
3000
1000
1000
100000

10;00
851,iS
65,00
30,00
10,00
10,00
1.000,1J0

125

1,25

1000000

10.000,00

100,':10

J ... C,00

Non allocated shares
TOTAL

prospective members are listed under the above categories only
the purpose of this Agreement. Recipient countries are referred to
e~here in this Agreement as Central and Eastern European countries

ANNEX

B

Dlrec:lors by Governors repre~tDtll1l Be1a 1um , Otto,flark, l··ance.
the federal Republic of Germany, Greece, Ireland, IInly, Luxembourg, f~~ "'~jOthf'rland~.
POTtu&al, Spain, the United K1nldom, the European EcoDomlc Communll~ J:JI~ dh E'.IT('I'f.1n

Section A -EJection of

In\tstment Bank (hereinafter referred to as Section A Gcvernors).
I. The provisions set out below in this Section shall apply exclusivel\' te this ~ct,on
2. Candidates for the office of Director shall be nominated by Section A GO"f!r1"rS, pro' inc j
that a Governor may nominate only one person. The election of Dire.:t·::>rs 5;'1;1 !:--! t:: t .1;(,.
of Section A Governors.
3. Each Governor eligible to vote shall cast for one person all of the votes to \\,hich the
member appointing him or her is entitled under paragraphs I and 2 of Article 29 of this
Agreement
4. Subject to paragraph 10 of this Section, the II persons receiving the highest number of
votes shall be Directors, except that no person who receives less than 4.5 per ce!lt of the tNal
of the votes which can be cast (eligible votes) in Section A shall be considered elected.
5. Subject to paragraph 10 of this Section. if II persons are not elected on the firH ballot. a
second ballot shall be held in which, unless there wer~ no more than II candid'tes. the
person who received the lowest number of votes in the first ballot shall be ineligit'le fur
election and in which there shali vote only:
a) those Governors who voted in the first ballot (or a person not elected and
b) those Goverr.ors whose votes for a person elected are deemed under paragraphs 6 ard .,
below of this Section to have raised the votes cast for that person above 5.5 per ('en! of the
eligible votes.
6. In dete~mining whether it:~ . . otes cast !>y a Governor are deemed to have rai<;cc r".: t:.~'!1
votes cast for any person above 5.5 per cent of the elig:ble votes. the 5.S per cent sh:!!! t-t'
deemed to include, first, the votes of the Governor casting the largest number of votes for
such person. then the votes of the Governor casting the next largest number and sc on until
5.S ",er cert is reached.
7. Any Governor. part of whose votes must be counted in order to raise the total of votes
cast for any person above 4.5 per cent shall be considered as castina all of his or her votes
(or such per::on, ev~n if the total votes for such person thereby exceed 5.S per cent and shall
not be eligible to vote in a further ballot.
8. Subject to paragraph 10 of this Section, if, after the second ballot, J J persons have nol
been elected, further ballots shall be held in conformity with the principl~~ and rrc·C!!'::!\lT-?S
laid down in this Section, until II persons have been eh~cted, provided that, if at any st3ge
10 persons are elected. notwithstanding the provisions of paragraph 4 of this Section, ihe II
th may be elected by a simple majority of the remaining votes cast.
9. In the case of an increase or decrease in the number of Directors to be eJected by Se<.:tion
A Governors, the minimuDl and maximum percentages specified in paraaraphs 4, S, 6 and 7
of this Section shall be appropriately adjusted by the Board of Governors.

10. So long as any Signatory. or group of Signatories, whose share of the total amount or
capital subscriptions provided in Annex A is more than 2.4 per cent. has not deposited its
instrument or their instrlJments of ratification, approval or acceptance. there shall be no
election for one Director in respect of each such Signatory or group of Signatories. The
Governor or Governors representing such I Signatory :>r group of Signatories shall elect a
Director in respect of each Signatory or group of Signatl)ries. immediately after the Signatory
becomes a member or the group of Signatories become members. Such Director shall be
deemed to have been elected by the Board of Governors at its inaugural meeting. in
accordance with paragraph 3 of Article 26 of this Agreement, if he or she is elected during
th& period in which the first Board of Directors shall hold office.

Section B - ELECTION OF DIRECTORS BY GOVERNORS REPRESENTING OTHER
COUNTRIES.
Section B (I) : Election or Directors by Governors representiDI those countries listed in
Annex A as Central and Eastern European Countrles( recipient countries) (hereinafter
referred to as Section B (I) Governors).

I. The provisions set out below in this Section shall apply exclusively to this Section.
2. Candidates for the office of Director shall b.e nominated by Section B (j! Governor!.
~jc\'ided that a Governor may nominate only one person. The election of D;rectof~ sh:lll be
by ballot of Section B (i) Governors.
3. Each Governor eligible to vote shall cast Cor one person all ()C the votes tc. whi.::h Ihe
member appointing him or her is entitled under paragr3phs 1 and 2 of Article 29 of this

Agreement.
Subject to paragraph 10 of this Section, the 4 persons receiving the highest number of
votes shall be Directors. except that no person who receives less than 12 per cent of the total
oi the votes which can be cast (eligible votes) in Section B (i) shall be considered elected.
4.

;. 3:.:bjcc' to par~graoh 10 of this Section, if 4 persons are not elected on the first ballot. a
ballot shaH be held in ·)"hich. unless there were nc. more than 4 candi1ates. the person
who received the lowest number of votes in the first ballot shall be ineligible for election :lnd

~.;.:ond

in which there shall vote only:
a) those Governors who voted in the first ballot for a person not elected and
b) those Governors whose votes for a person elected au deemed under paragraphs 6 and "7
below of this Section to have r;:;sed the votes cast for that person above I J per cent of the

eligible

vote~,

~'h~thel" t;"~ ···ole.; cast by a GovernOl" are
'Jotes cast for any person <,bove 13 poer cent of the eligible
. ~el!:n~d to include. first. the votes of the Governor casting
sur.:f. Of'fSV<i. ,;,,; th( votes of the Governor casting the next

6. In determining

13

nE:;:

(.er.! is

deemed to han: raised the tOlal
votes, the 13 per cent shall be
the largest number of votes for
largest number antj so on. until

rea,~hed,

7. Any Governor. part of whose votes must be counted in order to raise the total of votes
cast for any person above J2 per cent shall be considered as casting all of his or her votes
for sud- person, nen if the total votes for such person 'hereby exceed 13 per cent and shall
no; I)e eligil,!' to ,,:;t~ ill a further ballot.
3~::j~=t ,0 ;:>aragraph )"0 of this Section, if. aner the second ballot, 4 persons have not been
f:!e:ted. fu;;ner b~lIots shall be held in conformity with the principles and procedures laid
C!)'.V'1 j .. tn:s Section. until" persons have been elected, provided that. if at liny st3ge 3
persons 2.fC :!ccted, r.~twithstanding the provisions of paragraph 4 of this Section. the 4 th
may be '!le!:tcd by a simpl~ majority of the remaining votes east.

J.

;i; ":e case of ~1 increa3'! or decrease in the number of Directors to be elected by Section
B (i) G~' ~r~()r:; the miniMum and maximum percentages specified in paragraphs 4, 5. 6 and

9,

-; of

i!li~ S~cti(l:1

shall be appropriately adjusted by the Board of Governors.

10. So long as any Signatory, or group of Signatories, whose share of the total amount of
capital subscriptions provided in Annex A is more than 2.8 per cent, has not deposited irs
instrument or their instruments of ratification, approval or acceptance, [here shall be no
election for one Director in respect of each such Signatory or group of Signatorits. The
Governor or Governors representing such a Signatory or group of Signatories shall ele.:t J
Director in respect of each Signatory or group of Signatories, immediately after tht Signalery
becomes a member or the group of Signatories become members. Such DireCIOT' shall be
deemed to have been elected by the Board of Governors at its inaugural meeting. In
accordance with paragraph 3 of Article 26 of this Agrtement, if he or she is elected during
the period in which the first Board of Directors shall hold office.

SectloD B (II) : EleclloD or Directors by Goyernors representlDg those couDtries listed In
ADDex A as other EuropuD couDtries (hereiDafter rderred to IS Sectioo B (II) Cot·ernors).
I. The provisions set out telow in this Section shall apply e~c1usively to this $t:clion

2. Candidates for the office of Director shall be nominated by Section B (j,) Gov'!rnor:;
provided that a Governor may nominate only one perso:'l. The election of
by ballot of Section B (ii) Governors.

DI'f':l,"fS

snail Ct'

3. Each Govemor eligible to vote shall cast for one person all cf ~h~ ")ie: 10 h hie!' !~.e
member appointing him or her is entitled under: paragraphs I and 2 of A.i;i~;e :9 or th;:;
A peement.

4. Subject to paragraph )1) of this Section, the 4 persons receiving the il;&"e:,i H.:mt,u of
.. otes shall be Directors, ncept that no person who rec~ives less than ::!O.5 per cent 01 [t-e
votes which can be cast (eligible votes) in Section B (ii) shall be considered elected.

5. Subject to paragraph 10 of this Section, if 4 persons are not elected on the first ballot, a
se:on:1 ballot shall be held in which, unless there were M more than 4 candidates, the person
wflO receIved the lowest number of votes in the first ballot shall be ineligible for election and
ir, which there shall ,;ote only:
;;', '1-05<: c.:)vc~nor5

"",",c voted ;r. the first baHo~ for a pelson not elected and

aT'! dt'emed t!;)dcr ruagr~phs 6 :1!'~d :
below of this Section to have ~ais~.:f the votes cast for that person ato"e :!.5 pex cent v~ the
eligible votes.

t.} those Governors whose vo;es fc:- a person elected

6 In determining whether the ',otes cast by a Governor are deemed to have raised !lle

tOIJI

\ores c::.st for any person abov~ 2: 5 per cent of the eligible VOles. the 21.S :>er cent sha:! be
deemed to inclu.:j~, fir:t, IhE VGte~ ~f thi: Governor casli",~ ~ht !a: gest nur.:b~r rf "ot~~ far
suc!l person, tr.~ ~he . otes of the Governor caslin~ the f'e)r~ largest numter :'0111 ~n ',"n. '"nril
:.: ,5 per :ent i~ . eached.
7. A"y Coverno" part rf ',' ;"~.je ·,r;t·!s must be cO'Jnted in order to raise the tota! of \ (ltes
for any per!'lon abo\'f. ~;'5 pc~ cent shall be considered as ca.::ting all of his or t:er voles
te. :;..;::h p,::-son. ,;·.c:n i:" 1:-:(. :c:31 votes for such persor. thereb,. ej\ceed 21.S per cent and
st'oa;i r',r: be '!li;ible 10 "·Ot .. in ~. further ballot.
':a.':'

8. 5uJject to para~raph 10 o~ this Section, if, after the second ballot. 4 persons have not been
further ballots shall be held in conformity with the principles and procedures laid
do·}.r. ir t;ji~ Section, until 4 persons have been elected, provided that, if at any stage 3
~'e,5vns are ~l~cti~d. notwi'.hstanding the provisions of puagraph 4 of this Section, the 4 th
ma ... b-. ~If'·.ie(j by a simplt m:dodty of the remaining "'otes cast.
elt':~ed.

~

'i' ~t-'! ~,:"_cf' ..,f g'1 irlC'rea'e or decrease in th~ number of Directors to be '!Iected by Section
S (ji) GoverMis. the min:mum and ma~jmum percentagc1 specified in paragraphs 4, 5, 6 and

} oi this Se :tion shaIJ be appropriately adjusted by the Eloard of Governors.

10. So long as any Signalory, or group of Signatories, whose share of the total am0U!i\ or
capital subscriptions provided in Annex A is more than 2.8 per cent, hal not dep(;!;ited ils
instrument Or their instruments of ratification, approval or acceptance, there shall be no
election for one Director in respect of each such Signatory or group of Signatories. The
Governor CK Governors representing such a Signatory or group of Signatories shall elect 3
Director in respect of each Signatory or group of Signatories, immediately after the Signatory
becomes a member or the group of Signatories bec(lme members. Such Directo~ shall be
deemed to have been elected by the Board of Governors at its inaugural mt"tting, in
accordance with paragraph 3 of Article 26 of this Agreement, if he or she is elected during
the period in which the first Board of Directors shall hold office.

Sectloo B (iii) : Election or Directors by GovuDors representinl those counlri .. ~ IiSCfd in
Annu A as Non-Iuropuo Countries (herelnartu rderred to as Section B (ill) COYf:'oars),
I. The proy'isions set out below in this Section shall ap~Jy exclusi ... ely tC' t~.:;: ::."-.;~'''1.

2. Candidates for the office of Director shall be nOr:'linated by Sect:on :.1 (ill; Go',ernl;I's,
provided that a Governor may nominate only one person. The election C'f Dir~ct(;rs sIn!! b~
by ballot of Section B (iii) Governors,

3, Each GO'vernor eligible to vote shall cast for one persor. an of

':',i.

··ember appointing him or her is entitled under paragrat:i',:; I
Agreement.

", ,

~r.:i

.

'"

.. .

\it .~

.. r'_

"."',

",

.:. :;ubjec~ to paragraph 10 of this Section, the ~ pers!:ms recei\o!ing th~ hlght~i IllJmi.:er 01
yotes shall be Directors, except that no person v'ho receives less than 8 pel cera of tt:'!' ~ot31
of :he votes which can be cast (eligible votes) in Section B (iii) shall be con~jdered elected
5, Sut-ject to paragr3ph 10 of this Section. if 4

penons are not elected or. iht' first

~,alJot,

a

secc',c ksllot o;hal 1 be held in which. ":il!ess there were no more than 4 candidates, th., r .·r~cn
\"'hc r~ceived th~ ic ~eSi numt-e.r (: Y'oles :n the n!'st ballot shall be ine'!is:n;!,~ for "!'e('t:c-n ",~d
i i , : '.:

,there

~r.'!F "-:-,~~

b) those G0ve,l'lc'~
below of this 5ecticn
eligible votes.

\I...

rn'·:.

ho~e ",1.
tJ he'!

f .. : ~_p::;;.::,..:~ ~ieCied;;iC' deem'!d ~:1dei Pc,'igl'tph, ~ ~nd -:

raise:! the vote;' cast

fOi

that pe!'~on at>c .... ~ ~ V'- :,"- "'1' :":=

6. In d,?term:jlj~6 whernei t~~ '10:0;; ·:a:;~ b:;· a G0.'ern~·( l\'(' deeri'.ed t·:, '":l' e '?~',~~ .r,? ,:.,,-,1
votes cast fc~ J.nj ~e!"<;O!l ~~., '-'~ '~; ~t:r cent. of th~ C':j~ib:e VO!"5, Ih'! ~. i·,~r ...~:-;; :,h~;;' r,~
,
ti
'.,...
h
('
.
·~;::me .. to I!"I: ,;:,: 'J::;(, t ,!; ·,',,;.t1:5 '.IL :ht:: ',jO·'~. r,;:;; ca.:;t,,:.] thE. largest n:;~r.: ';:' ()' ;';-:~f'~ "~,
~'ich pe::;~·". r:~e~ t~~ vote:,. ';~~ ~:.~_\,,&.~ .. ~t:tr '::'~~in; ~h,: ;'!::.,r ~ar"~5! n~_'~,~~" _"..I "', , .....~ _ •.•. ;
~

',: pc!'" cefJ~

;:

r~:lc.·.~:j.

- .. \ ny Gover'j~- ~lr~
".;\..:;~ '.:<.;.n i:ilIst be coun'~d in order to raise n-!~ :o:~1 .-::( ';o:"~-:
::" ~ ~-~.:: .. ;.:::' - : .... .:i ",,,,i,L .;hali tie cOilsidered as casting aU cf ~:5 or ~;.r \':)~~S
r-"';:, .,-.. !!" ;~ '.:,:.. ,"~~l 'C;LS for sue;' person thereby f!JtCf:'!r1 ''I j.:r,'!' Ctnt .~r.:j sh:lll
nil' .1,~ ~,~~:,):~~ ; •.- -.~;~ In ~ funh~r oaHot.

,,~:' .::
f::,: ~·.l;ia

8, !:-..:'ject ~v v'ltl;:.g-;.ph 10 of ti.is Stetion, if. after the second ballot, 4 persons have not ~~!n
el:'-i~';;, f'li: h~;r ballots shaH b! neid in conformity with the principles and procedure~ I~id
cL,~n;
:.~,~ ~"!':.~·-'n. url,i 4 r:'~~3(\":: have been elected. provided that. i( at any stagp- 3
pE. ,-,~r ..... " : ' , ':'~:. no:, .:;,~!:;r;;~:rf2 the prcv;sjons of p:uagraph 4 of this Section t"e 4 lh
-4 - .
•
,
•
~~:' ~~ ~ Jf·-'
,..:' ~ ~imr'~ r'f.:t,;?r!ty
cf the rema1ning ... otes cast.
:"• • - ."
.. ·"-3
.... .;"err-~"
-' •.......··"·"'''e
' • th e num ber 0 r D'arectors to b
I d by Se"ion
'''• ...,; . .,.,r
. ~"
. . . . . . . - ".
uo \.J
:~ ....
ii,
e teete
[ ,;~i) G:;,'/- !'''!C:.:. the :'lli'limum and maximum pf!rcenrages specified in para~rachs ,I. 0:. 6
:~d ; c~ t:":: ~"~:":"~~ ~ ;la i : ,:e approp:i3t,~ly adjusled b) the Board of Goveiflcrs.

10. So long as any Signatory. or group of Signatories. whose share or the total amount cf
capital subscriptions provided in Annelt A is more than S per cent, has not deposited its
instrument or their instruments of ratification. approval or acceptance. there shall be no
election for one Director in respect of each such Signatory or group of Signatories. The
Governor or Governors representing such a Signatory or group of Signatories shall elec! a
Director in respect of each Signatory or group of Signatories. immediately after the Signat0ry
becomes a member or the group of Signatories becclme members. Such Director o;h~1I be
deemed to have been elected by the Board of Governors at its inau@ural m~eling. in
accordance with paragraph 3 of Article 26 of this Agreement. if he or she is eJe:rea during
the period in which the first Board of Directors shall hold office.

~ectloD C : ARRANGEMI:NTS fOR THE ELE.CTION OF DJRECTORS r •. :'RESENTING
COUNTRIES NOT LISTED IN ANNEX A.

If the Board of Governor~ decide!, in accorda;l~e with paragraph) of t..n;,;p' 26 of
this Agreement. to increa;e or decrease the siu or revise." lo'le compositinr,. ·)f (he heard of
Dire-ciors. in order LO t2ke into account changes in the number of memb'!r .. oi tM Ban~.. the
Boare Gf Governors shall (irst consider whether any amc!ndm.ents are rt'quir~~ to this Ar.r}eK
::nd may make any such a:nendments as it deems necessary as part of such decision.
.

S~c(lon

0 : ASSIGNMENT OF VOTES.

Any Governo· who. does not ,Participate in "c:~;'lg for tke ele~~hn r,r ~ 11. j :;e vc.!e
does not contribute to the p.!ectlon of a Dlre~tor u;;'::e( 5f~crlon A (lor Section
OJ or Section B

a

(iJ) or Section B (iii) of this Annex may asslgn the votes to which he or she is entitled to a
elccied Director, provided that such Governor shall firs. have obtained the agreement of al~
those Governors who have elected that Director to such 2ssignment.
A decision by any Governor not to particj~late in voting for the ek,=Hon of a
Director shall not affect the C3'~I.:la!:,."·. of thE" eligible \>otes to be made und.~:- Ser.iicn A
S·~ction B (i). Sec:;~Jn B (ii) or S~,:ti.'~i' S (;ii) of this Annex.

TREASURY NEWS

rtment of the Treasurv • Washington D.C~ • Talephone 5 •• -2041
For Release Upon Delivery
Expected at 12 noon
July 19, 1990
REMARKS BY J. FRENCH HILL
DEPUTY ASSISTANT SECRETARY OF THE TREASURY
LEVERAGED BUYOUTS: FRIEND OR FOE TO U.S. COMPETITIVENESS
JULY 19, 1990
The decade of the 1980s has been maligned as the greed
decade or the decade of debt-- as characterized by the books:
Trump, Bonfire of the Vanities, and Barbarians at the Gate.
I
submit that, in fact, it was a decade of economic revolution-with far more positive than negative ramifications for America.
The long-term losers in this revolution were bureaucrats, big
government, and builders of corporate conglomerates of the 1960s
and 1970s, who thought that big and diverse would lead to money
and power. The long-term winners are the private sector,
American families, entrepreneurs, and ultimately, American
competitiveness.
The 1980s were a decade which began with a prime rate of
21.5% and ended with a rate of half that amount. The 1980s
included the longest peacetime expansion in u.s. history, with
real GNP growth averaging a strong 4% annually since the
recession trough in 1982. The share of the population employed
reached an all-time high in 1989 and the unemployment rate has
fallen to its lowest level since the early 1970s. During the
economic expansion of the last seven years we have created nearly
18 million jobs-- this compares to only 6.5 million jobs created
in the EC and 4.9 million new jobs created in Japan during the
same time period.
Income tax rates were cut for families and
business. Cover stories began to highlight economic growth
instead of the inflation of the "malaise decade" of the 1970s.
Certainly, as with any revolution, there were excesses
accompanied by the use of poor judgment and incorrect
assumptions. Some of the dubious quotes of the decade included:
"This loan is a sure thing-- Sovereign countries repay their
debts"
"West Texas Intermediate will be $60 a barrel"
"The stock market is poised for sustained growth"-- August
1987.

NB-882

Despite these highly publicized excesses, one must n~t lose
sight of what is truly important to long-term u.s. econom1C
competitiveness-- competitive, innovative u.s. businesses.
Today, I would like to use the leveraged buyouts of the 1980s as
an example of how some of the financial trends in the past decade
may have helped to point us toward ways of improving u.s.
competitiveness.
The Genesis of LBOs
LBOs have received a great deal of media and congressional
attention in the last few years.
Countless newspaper and
magazine pages have proclaimed the vices of LBOs.
LBOs have been
accused of depressing R&D and capital investment. They have been
blamed for factory closings and massive layoffs.
Congress has
clamored for limits on the deductibility of interest expenses
relating to LBO debt on the grounds that LBOs merely line the
pockets of investment bankers and attorneys and reduce sorely
needed tax revenues.
Before we look at the merits of these accusations, I would
like to take a few moments to review briefly the genesis of
leveraged buyouts.
In 1981, there were fewer than 100 LBO transactions,
amounting to less than $3 billion. By 1988, there were over 300
transactions, totaling nearly $43 billion.
There were a number of factors that came together which
contributed to the explosive growth of LBOs during the 1980s:
1)

The development of the high yield bond market greatly
expanded the field of potential buyers. One no longer
needed vast personal or corporate resources to purchase
a company, but instead could rely on the increased
leverage available through this subordinated, often
non-investment grade debt.

2)

Like access to innovative sources of debt, the
emergence of large LBO funds created large pools of
equity funds to be used for LBO transactions.
Attracted by high returns, venture capital funds
shifted into LBO funds.
In addition, huge sums of
money were attracted from institutional investors
looking for long-term investment opportunities. By the
7nd of , the decade, these funds had grown to $30 billion
1n equ1ty.

3)

A favorable economy and a rising stock market enabled
companies which were bought in the early part of the
decade to be taken public or sold for a much higher
price in the mid-1980s.
2

4)

The maturing of American industries such as textiles
and selected food, retail and manufacturing entities,
provided an opportunity for recapitalization. LBOs
provided firms with stable cash flows, but which were
not able to profitably reinvest in their businesses, an
opportunity to return capital back to their
shareholders to be redeployed in more productive areas.

Despite the criticisms and celebrated flops like Campeau,
many of the negative generalizations made by the media have
turned out to be overstated. Let us look briefly at the evidence
to date regarding the affect that LBOs have had on productivity,
employment, research and development, returns to shareholders and
on tax revenues.
o

Productivity -- Studies show that LBOs often lead to
significant productivity gains as a result of 1)
increased intensity of effort by labor resulting from
reward systems which are more closely tied to the
performance of the company and 2) better allocation of
existing resources. A recent Census Bureau study of
all 1,100 manufacturing plants actually involved in
buyouts between 1981 and 1986 showed that LBOs had 23% higher productivity growth than other plants in the
same industry.

o

Employment -- Statistics indicate that for the country
overall, there has been no material change in
unemployment resulting from LBOs. The Bureau of Labor
Statistics found that only 4% of the total mass layoffs
in 1988 were attributable to a change in company
ownership. For plants that are closed, it is almost
always because they were uncompetitive before the LBO.

o

Research and Development -- LBOs are primarily in
mature industries which do not require a significant
amount of R&D or capital expenditures. A recent survey
showed that 77% of going private companies had no R&D
expenditures prior to the buyout.
It is true that for
companies with R&D, R&D is often pared back somewhat
during the first year after the transaction. However,
dollars spent on R&D are not always directly correlated
with quality.

o

Returns to Shareholders -- Premiums paid to the selling
shareholders in LBOs typically range from 30%-50% with
the average being around 40%.

3

o

Impact on Tax Revenues -- While increased interest
deductions lower a company's tax liability, it appears
that LBOs may actually increase total tax revenues for
the federal government as a result of:
large capital gains taxes paid by the sellers
interest income tax of most debt holders
fees earned by investment bankers, lawyers, etc.
are taxable

LBO Excesses
Like other financial innovations of the past-- the stock
swaps of the 1960s and the real estate trusts of the 1970s-- the
success experienced by the early LBOs caught the attention of
others. LBOs became the new financing rage. The great influx of
LBO financing helped to bid up prices. The ratio of price paid
to a company's earnings on the New York stock Exchange went from
about 9 times in March 1980 to a pre-crash high of 22 times in
September 1987. Anxious to put their newly raised funds to use,
LBO fund managers began to invest in companies which were not
well suited for LBO transactions. The result has been some
highly publicized LBO failures.
The market recognized these failures and market forces
worked to exert discipline.
During the last half of 1989, high
yield bonds dramatically dropped in value, more accurately
reflecting the risk involved in some highly leveraged
transactions.
Investors began demanding stronger loan covenants
and greater equity. This market discipline reduced LBO prices,
fees paid and profits to dealmakers.
During the second half of 1989, LBO transactions declined in
total volume and in value. That decline appears to be continuing
into the 1990s with 61% decline in the number of announced deals
in the first quarter of 1990 compared to 1989.

Lessons Learned

As the number of LBO transactions has declined, so has the
media and congressional clamor. Thus, now is a good time to
reflect on what we have learned from the experience. The
Department of the Treasury has conducted a thorough review of
LBOs.
From our work, there are four lessons I would like to
reflect upon today.

4

Need to Lower the Cost of Capital
First, LBOs helped to highlight the impact of a high cost of
capital on corporate investment decisions.
In our review of
LBOs, it became clear that one factor which was encouraging
leveraged buyouts was a company's desire to lower its cost of
capital. In an LBO, high priced equity is substituted with less
expensive, tax-deductible debt.
Furthermore, an LBO or
recapitalization, where a company borrows to repurchase shares,
often takes place because a company cannot employ its assets at a
return in excess of its capital costs.
studies show that u.s. companies on a whole have higher
capital costs than those in Japan and W. Germany. High capital
costs make it difficult to invest in projects which meet the high
required return, thus, discouraging investment. Higher capital
costs especially hurt projects with long-term returns, such as
new technologies.
The Bush Administration is responding to this problem by
pursuing policies designed to lower the cost of capital for all
u.s. companies. such policies include: reducing the federal
budget deficit and enhancing personal savings, which by
increasing the available pool of savings would contribute to
lower interest rates; and reducing the tax rate on long-term
capital gains to reduce the equity capital costs and to spur
investment.
In addition, the Treasury is studying the feasibility of
eliminating the double taxation of corporate profits.
Eliminating this penalty now imposed on equity in the u.s. would
help to lower the cost of equity. The u.s. is currently the only
major industrial country that fully taxes corporate income at
both the corporate and personal level, and that does not give at
least some preferential treatment to capital gains.
Eliminating
the bias in our tax code against equity would reduce the
incentive of u.s. companies to capitalize with debt instead of
equity, ensuring that highly levered transactions were more
motivated by economic concerns than merely tax benefits.
Importance of Focusing on Core Business
A second lesson learned was the benefit of focusing on a
single core business. The 1960s and 1970s were marked by the
emergence of large conglomerates. MBA students were taught about
mixing "cash cows" and high growth, cash-using "stars".
Executives followed the strategy that "bigger is better".

5

LBOs in many ways were a response to uns~cces~ful
conglomerations. Of LBOs in 1988, 55% were d1vest1ture~.
They
demonstrated the advantages of focus, which has led to 1ncreases
in productivity on the part of managers and workers alike, and
has made u.s. companies more competitive.

Benefits of Significant Owners
A third lesson to be drawn from our review of leveraged
buyouts is that there can be competitive advantages to being a
private company with a few significant and active shareholders.
By going private, managers are no longer affected by short-term
stock market fluctuations and whims of stock analysts and money
managers, allowing them to focus on managing for the long-run.
Instead of having to respond to stock market pressures, the
company is accountable to a group of significant investors who
sit on the board of directors. These investors are often not
only more patient, but they also have a greater understanding of
the company and its operations and can provide valuable, timely
advice to management.

Benefits of Owner/Managers
Finally, and probably the most important lesson which came
from the Treasury's review of LBOs is the benefit of linking the
interests of owners and managers. Michael Jenson of the Harvard
Business School in his article "The Eclipse of the Public
Corporation" puts it well:
By resolving the central weakness of the public
corporation-- the conflict between owners and managers
over the control and use of corporate resources-- these
new organizations are making remarkable gains in
operating efficiency, employee productivity and
shareholder value.
In most LBOs, managers own a significant portion of company
stock often creating a strong link between the managers personal
wealth and the success or failure of the company. As a result,
the.g~a~s of managers and owners are aligned, each interested in
max1m1z1ng the total value of the company.

6

Applying LBO Lessons in the 1990s

The alignment of management and owner interests visible in
many of the successful LBOs is in stark contrast to trends in
much of corporate America. Trends, which I believe hurt the
productivity and competitiveness of American business. Some
argue that the underlying problem is that corporate managers in
big public companies are often no longer adequately accountable
to shareholders. The board of directors is supposed to ensure
that managers pursue the interests of shareholders by maximizing
the value of the firm: yet directors are frequently hand-picked
by the CEO they are supposed to be monitoring.
Rather than trying to strengthen the accountability of
managers to shareholders, corporate executives and politicians
have done just the opposite. Executives have moved to further
insulate themselves from accountability by protecting themselves
from takeovers by means of "poison pills", "staggered boards" and
other devices-- not by improving performance.
The Treasury is currently examining ways in which both
private sector, as well as state and federal governments can
better facilitate management responsiveness to maximizing the
productivity and value of the companies which they have been
charged to manage.
In addition, it is the responsibility of
state and federal governments to ensure that shareholders are not
increasingly burdened by costly laws and regulations which
discourage them from taking a long-term view to investing. I
would suggest the following:
Private Sector
The private sector is the best position to improve the
relationship between owners and managers. To begin, steps should
be initiated by the board of directors to strengthen their
independence and role as monitor of management.
First, I
strongly endorse recommendations made recently by the Business
Roundtable that would require that the Board of Directors be
comprised of a majority of outside directors.
In addition, the
Business Roundtable urges companies to take steps to assure that
board committees such as Nominating and Compensation committees
are made up entirely of outside directors.
Second, I believe that corporate America needs to rethink
the way executives and directors are compensated. Executive
compensation has a profound influence on management behavior.
People behave differently when they have an ownership interest.
Homeowners have a different attitude about their homes than do
renters. Do you treat a rental car like your own?
Ownership
makes people care more. This is true in business as well.
Executives and directors will care more about the long-term value
7

of the company if they own a stake in it which is significant to
them.
Boards of Directors should reevaluate the current
composition of compensation plans and propose changes to ensure
that executives are rewarded in a manner which encourages them to
maximize the long-term value of the firm.

state Legislatures
During the past several years, states have spent millions of
dollars on overseas offices to attract foreign investment.
Paradoxically, many of these same state legislatures are passing
anti-takeover laws which actually discourage greater foreign as
well as domestic investment. These laws, designed to protect
incumbent management, measurably raise the cost of capital for
companies incorporated in those states.
In Pennsylvania, an attempted takeover of Armstrong World
Industries precipitated one of the strongest anti-takeover
statutes in the country. Richard Breeden, Chairman of the
Securities and Exchange Commission made clear the implications of
such legislation in a recent speech when he stated:
Creating balkanized markets rather than a unified
national market system will cause serious economic
costs for the united States .•. our ability to compete
effectively against the Japanese and a unified European
market in the 1990s will suffer immeasurably if other
state legislatures make our current fragmentation even
worse.
I believe that greater management accountability generates
more competitive firms and therefore it is critical that state
legislatures rethink laws that destroy the link between
shareholders and the board of directors.
In the case of these
anti-free market statutes like Pennsylvania, legislatures should
go back to the drawing board and at the very least, offer
shareholders the option to opt-in to new state anti-takeover
statues rather than forcing them to vote to opt-out. The burden
should be on management to explain at the annual meeting how
these laws create value for the shareholders.
Federal Government
,
,The solutions to closer shareholder/manager relationships
11e 1n less federal and state regulation. Over the decades, the
SE~, Department of Labor, FTC, IRS, and bank regulators have
bU11t-u~ a,b~dy of re~latory impediments which impose costs and
other s1gn1f1cant barr1ers to an effective corporate governance
system.

8

For example, the SEC is considering proposals to ease proxy
rules to allow freer and less costly communication among
shareholders and between shareholders and managers. This type of
regulation has effectively imposed such high costs on
shareholders that instead of attempting to influence management
and improve company performance, most shareholders when
dissatisfied simply dump their shares. As Secretary Brady has
said, "patience requires participation". without carefully
reviewing and correcting these regulatory burdens, America's
corporations are destined to be governed by traders rather than
investors.

Conclusion

In conclusion, many successful LBOs have improved upon the
ability of those companies to compete.
In addition, they have
taught us a number of lessons which go beyond companies which
undertake LBOs. At the Treasury our primary focus has been to
promote policies which facilitate a lower cost of capital, and to
find ways in which both public and private sectors can strengthen
the relationships between owners and managers.
While LBOs are one way of doing this, they are not an
appropriate form of capitalization for the majority of u.S.
public companies.
Instead, we must go beyond LBOs and look for
ways to lower capital costs and strengthen accountability for all
u.S. businesses-- no matter what their size or form.
In the Bush
Administration, our top concern is in removing governmental
impediments in order to preserve and improve the competitiveness
of u.S. companies. We are working hard toward this end and we
know that those of you in the private sector are too. Thank you.

TREASURY NEWS

artment of the Treasury • Washington, D.C. • Telephone 5 •• -204 ..

FOR IMMEDIATE RELEASE
July 19, 1990

CONTACT:

Art Siddon
202/566-5252

TREASURY UPDATES ESTIMATES OF FINANCING REQUIREMENTS
The Treasury market borrowing estimates have been revised
upward for the July-September 1990 quarter.
Treasury estimates
that market borrowing will be in a range of $62 billion to $66
billion during the July-September 1990 quarter, with a cash
balance of $30 billion on September 30.
The revised borrowing estimate compares with a range of $30
billion to $35 billion, assuming a $30 billion September 30 cash
balance, announced in the Treasury's financing press conference
of May 2, 1990. The earlier July-September estimate did not
include any allowance for Federal Financing Bank lending to the
Resolution Trust Corporation. The updated estimate of $62
billion to $66 billion announced today includes an allowance for
RTC activity that is in line with the estimate presented in the
RTC Operating Plan approved by the Oversight Board.
The Treasury will announce the terms of the regular August
quarterly refunding on August 1, 1990, and will update Treasury's
market borrowing requirement estimates for the July-September
quarter.

NB-883

TREASURY NEWS
~rtment

of the TreaSlI1IY • washington, D.C . • Telephone 5&&-2041

FOR RELEASE AT 12:00 NOON
July 20, 1990

CONTACT: Office of Financing
202/376-4350

TREASURY'S 52-WEEK BILL OFFERING
The Department of the Treasury, by this public notice, invites
tenders for approximately $10,500 million of 364-day Treasury bills
to be dated
August 2, 1990,
and to mature August 1, 1991
(CUSIP No. 912794 WS 9). This issue will provide about $1,450
million of new cash for the Treasury, as the maturing 52-week bill
is outstanding in the amount of $9,058
million. Tenders will be
received at Federal Reserve Banks and Branches and at the Bureau
of the Public Debt, Washington, D. C. 20239, prior to 1:00 p.m.,
Eastern Daylight Saving time, Thursday, July 26, 1990.
The bills will be issued on a discount basis under competitive
and noncompetitive bidding, and at maturity their par amount will
be payable without interest. This series of bills will be issued
entirely in book-entry form in a minimum amount of $10,000 and in
any higher $5,000 multiple, on the records either of the Federal
Reserve Banks and Branches, or of the Department of the Treasury.
The bills will be issued for cash and in exchange for
Treasury bills maturing August 2, 1990.
In addition to the
maturing 52-week bills, there are $16,097 million of maturing bills
which were originally issued as 13-week and 26-week bills. The disposition of this latter amount will be announced next week. Federal
Reserve Banks currently hold $995
million as agents for foreign
and international monetary authorities, and $5,144 million for their
own account. These amounts represent the combined holdings of such
accounts for the three issues of maturing bills. Tenders from Federal Reserve Banks for their own account ·and as agents for foreign
and international monetary authorities will be accepted at the
weighted average bank discount rate of accepted competitive tenders.
Additional amounts of the bills may be issued to Federal Reserve
Banks, as agents for foreign and international monetary authorities,
to the extent that the aggregate amount of tenders for such accounts
exceeds the aggregate amount of maturing bills held by them. For
purposes of determining such additional amounts, foreign and international monetary authorities are considered to hold $26
million
of the original 52-week issue. Tenders for bills to be maintained
on the book-entry records of the Department of the Treasury should
be submitted on Form PO 5176-3.

NB-884

TREASURY'S 13-, 26-, AND 52-WEEK BILL OFFERINGS, Page 2
Each tender must state the par amount of bills bid for,
which must be a minimum of $10,000. Tenders over $10,000 must
be in multiples of $5,000. competitive tenders must als~ sh~w
the yield desired, expressed on a bank discount rate bas1s ~1th
two decimals, e.g., 7.15%. Fractions may not be used. A s1ngle
bidder, as defined in Treasury's single bidder guidelines, shall
not submit noncompetitive tenders totaling more than $1,000,000.
Banking institutions and dealers who make primary
markets in Government securities and report daily to the Federal
Reserve Bank of New York their positions in and borrowings on
such securities may submit tenders for account of customers, if
the names of the customers and the amount for each customer are
furnished. others are only permitted to submit tenders for their
own account. Each tender must state the amount of any net long
position in the bills being offered if such position is in excess
of $200 million. This information should reflect positions held
as of one-half hour prior to the closing time for receipt of
tenders on the day of the auction. Such positions would include
bills acquired through "when issued" trading, and futures and
forward transactions as well as holdings of outstanding bills
with the same maturity date as the new offering, e.g., bills
with three months to maturity previously offered as six-month
bills. Dealers, who make primary markets in Government securities and report daily to the Federal Reserve Bank of New York
their positions in and borrowings on such securities, when submitting tenders for customers, must submit a separate tender for
each customer whose net long position in the bill being offered
exceeds $200 million.
A noncompetitive bidder may not have entered into an
agreement, nor make an agreement to purchase or sell or otherwise dispose of any noncompetitive awards of this issue being
auctioned prior to the designated closing time for receipt of
tenders.
Payment for the full par amount of the bills applied for
must accompany all tenders submitted for bills to be maintained
on the book-entry records of the Department of the Treasury.
A cash adjustment will be made on all accepted tenders for the
difference between the par payment submitted and the actual
issue price as determined in the auction.
No deposit need accompany tenders from incorporated banks
and trust companies and from responsible and recognized dealers
in investment securities for bills to be maintained on the bookentry records of Federal Reserve Banks and Branches.
8/89

TREASURY'S 13-, 26-, AND 52-WEEK BILL OFFERINGS, Page 3
Public announcement will be made by the Department of the
Treasury of the amount and yield range of accepted bids.
Competitive bidders will be advised of the acceptance or rejection
of their tenders. The secretary of the Treasury expressly
reserves the right to accept or reject any or all tenders, in
whole or in part, and the Secretary's action shall be final.
Subject to these reservations, noncompetitive tenders for each
issue for $1,000,000 or less without stated yield from anyone
bidder will be accepted in full at the weighted average bank
discount rate (in two decimals) of accepted competitive bids
for the respective issues. The calculation of purchase prices
for accepted bids will be carried to three decimal places on the
basis of price per hundred, e.g., 99.923, and the determinations
of the Secretary of the Treasury shall be final.
Settlement for accepted tenders for bills to be maintained
on the book-entry records of Federal Reserve Banks and Branches
must be made or completed at the Federal Reserve Bank or Branch
on the issue date, in cash or other immediately-available funds
or in Treasury bills maturing on that date.
Cash adjustments
will be made for differences between the par value of the
maturing bills accepted in exchange and the issue price of the
new bills.
If a bill is purchased at issue, and is held to maturity,
the amount of discount is reportable as ordinary income on the
Federal income tax return of the owner for the year in which
the bill matures. Accrual-basis taxpayers, banks, and other
persons designated in section 1281 of the Internal Revenue Code
must include in income the portion of the discount for the period
during the taxable year such holder held the bill.
If the bill
is sold or otherwise disposed of before maturity, any gain in
excess of the basis is treated as ordinary income.
Department of the Treasury Circulars, Public Debt Series Nos. 26-76, 27-76, and 2-86, as applicable, Treasury's single
bidder guidelines, and this notice prescribe the terms of these
Treasury bills and govern the conditions of their issue.
Copies
of the circulars, guidelines, and tender forms may be obtained
from any Federal Reserve Bank or Branch, or from the Bureau of
the Public Debt.
8/89

TREASURY NEWS

Irtment Of the Treasun • washlnaton, D.C . • Telephone 5&&-204'
CONTACT: Office of Financing
202/376-4350

FOR IMMEDIATE RELEASE
July 23, 1990
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS

Tenders for $9,026 million of 13-week bills and for $9,011 million
of 26-week bills, both to be issued on
July 26, 1990,
were accepted today.
13-week bills
October 25 1 1990
Discount Investment
Price
Rate 1/
Rate

RANGE OF ACCEPTED
COMPETITIVE BIDS:

maturin~

Low
High
Average

7.46%
7.50%
7.49%

7.71%
7.75%
7.74%

26-week bills
January 24, 1991
Discount Investment
Rate
Rate 1/
Price

maturin~

7.37%
7.41%
7.40%

98.114
98.104
98.107

7.76%
7.80%
7.79%

96.274
96.254
96.259

Tenders at the high discount rate for the 13-week bills were allotted 48%.
Tenders at the high discount rate for the 26-week bills were allotted 38%.
TENDERS RECEIVED AND ACCEPTED
(In Thousands)
Received
Received
AcceEted

Location
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
TOTALS
~
Competitive
Noncompetitive
Subtotal, Public

Federal Reserve
Foreign Official
Institutions
TOTALS

$

33,450
7,961,405
20,550
40,705
38,755
24,300
51,960
16,815
7,385
38,805
20,760
68,500
703,075

$29,615,350

$9,026,465

36,900
20,246,620
15,530
35,380
37,620
25,425
2,747,930
26,100
15,450
44,705
14,935
616,075
678 z590
$24,541,260

$26,391,160
1,457 z390
$27,848,550

$5,802,275
1,457 z 390
$7,259,665

$20,581,115
l z 300 z 785
$21,881,900

$5,050,915
l z300 z 785
$6,351,700

1,551,960

1,551,960

1,800,000

1,800,000

214 z840

214 z840

859 z 360

859 z 360

$29,615,350

$9,026,465

$24,541,260

$9,011,060

$

33,450
25,985,275
20,550
40,720
38,755
24,300
1,961,960
40,815
7,385
38,805
20,760
699,500
703 z075

AcceEted

$

$

36,900
7,717,140
15,530
35,380
37,620
25,425
313,930
18,100
10,450
44,705
14,935
62,355
678 z 590
$9,011,060

An additional $44,760 thousand of 13-week bills and an additional $149,740
thousand of 26-week bills will be issued to foreign official institutions for
new cash.

1/

Equivalent coupon-issue yield.

NB-88

TREASURY NEWS

alrtment of the Treasury • Washlngton ... D.C . • Telephone 588-20.1
STATEMENT
OF
JOHN E. ROBSON
DEPUTY SECRETARY OF THE TREASURY
BEFORE
THE
SENATE JUDICIARY COMMITTEE
CONCERNING
COMBATING FRAUD AGAINST FINANCIAL INSTITUTIONS
ON
JULY 24, 1990

Mr. Chairman and Members of the Committee, I am pleased to
appear before you today on behalf of the Department of the
Treasury to discuss pending legislative initiatives to combat
crime in financial institutions.

We attach the highest priority

to finding and punishing those responsible for looting these
institutions.

As Attorney General Thornburgh outlined for you
earlier this morning, on June 22 the President announced
further steps to intensify the fight against fraud in our
nation's financial institutions.

The Treasury is committed

to working with this and other committees of the Congress to
see the legislative elements of the President's program
enacted into law.

NB-886

- 2 -

The punishment of the perpetrators of fraud, theft, and
other abuses of our banking system is important to
the ultimate resolution of the savings and loan crisis.
Indeed, that resolution will not be complete until we have
prosecuted those whose misdeeds have contributed to the problem.

The thrift crisis has many contributing causes, some of
which originated more than a decade ago.

They include the thrift

industry's efforts to adapt to economic adversity and
skyrocketing interest rates.

Thrifts were given broader powers

without always being accompanied by appropriate regulatory
scrutiny.

Capital requirements were too low, with the result

that thrift owners made risky investments with very little of
their own money at stake.

Downturns in regional economies,

problems in the real estate markets in some areas, and in the
junk bond market nationwide, worsened an already bad situation.
Finally, mismanagement or criminal activity fatally weakened some
thrift institutions.

This is the problem that faced President Bush when he took
office in January of 1989.

In less than twenty days he proposed

a comprehensive program to address and resolve the savings and
loan crisis.

Seven months later, in August of last year,

hard work and cooperation between the Congress and the
Administration resulted in the enactment of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989.

-

3 -

In the period of less than one year since FIRREA was enacted
we have made considerable progress:

- The thrift industry is now operating under new tough
capital requirements so that thrift owners must put up
their own money instead of the taxpayers'.

- The bankrupt and financially weak 5 & L's which can't meet
the new standards for safety and soundness are being put
out of business.

In fact, over 450 have been taken over

by the government.

In less than one year, RTC has

resolved institutions whose assets exceeded in value the
total assets which the FDIC liquidated over the entire
50 years of its existence.

- Millions of deposits in failed 5 & L's -- deposits made
by men and women, churches, small businesses and others
in reliance on the Federal Government's promise to
protect those deposits -- have in fact been protected.

- And, as the Attorney General has described today,
criminals and fraudulent operators who contributed to
the 5 & L crisis are being brought to justice.

50

the message that I want to leave with you today is that

President Bush's initiative to address the 5 & L problem -- as
represented in the FIRREA legislation -- is working and we are
getting this big job done.

-

4 -

However, the magnitude of the problem remains formidable and
it will take some time for the government to clean up a situation
that was over a decade in the making.

Moreover, we are dealing

with a moving target, made greatly more expensive by a weakening
real estate market and constantly changing economic conditions.
The issue is not susceptible to easy answers or simple solutions.
The problems are complex and massive

as we knew they were a

year ago as we worked together to adopt legislation.

If

anything, the experience of eleven months has revealed that the
task is even more difficult than any of us then imagined.

I would like to underscore that money spent on the
savings and loan crisis is spent with a single purpose in mind.
The United States government made a promise to millions of
Americans.

We promised to protect their savings if deposited

in a federally-insured savings and loan.

Now we are making

good on that promise to millions of men and women who relied
on it.

So it bears repeating that we are not using any taxpayer

dollars to bailout thrift institutions, their owners, or the
savings and loan industry.

We are living up to the government's

end of the agreement represented by federal deposit insurance.
emphasize this point to give you an important perspective as we
evaluate and work to solve this problem.

I

-

5 -

Three principles guide us as we carry out the job we began
with passage of the FIRREA legislation.

o

First, we will make sure that the millions of
men and women who put their life savings in
thrift institutions are protected to
the full extent of their federal deposit
insurance.

o

Second, we will do everything in our power to
do the job expeditiously, responsibly, and at the
least cost to the taxpayer.

o

Third, we will aggressively pursue and prosecute
those whom we believe helped create the S&L problem.

This last point is the one that we address today.

As Attorney General Thornburgh indicated in his testimony
a good deal has been accomplished from an enforcement
perspective since the enactment of FIRREA less than a year ago.
I would like to take this opportunity to commend the Justice
Department for its efforts in coordinating a financial crimes
enforcement program for both civil and criminal offenders.

The

establishment of the Special Counsel for Financial Institution
Fraud and the Financial Frauds Coordinating Office in the Office
of the Deputy Attorney General will help focus the government's

-

resources.

6 -

The ability to strike quickly and efficiently

at financial criminals will be strengthened by the coordination
of efforts.

The creation of the "rapid response team" made up

of special investigators and attorneys from Justice and the
federal banking agencies is especially important because it
enables prosecutors to act while evidence and memories are
fresh, rather than years later when both are stale.

A number of Treasury bureaus and agencies have contributed
to the investigations, indictments, and convictions brought
to date -- including the Office of Thrift Supervision (OTS) ,
the Office of the Comptroller of the Currency (OCC), the Internal
Revenue Service, and the united states Secret Service.

In addition to the OCC and the OTS, the IRS, for example,
has been an active participant in the Dallas Bank Fraud Task
Force, and, nationally, is currently involved in over 70 cases.

The OCC has a long history of vigorously responding to such
fraud and abuse in our national banking institutions through use
of its administrative enforcement remedies and its pursuit of
criminal referrals.

Director Ryan will provide you with an overview of OTS's
recent activities.

- 7 -

These enforcement efforts can be bolstered with strengthened
legislation, such as the initiatives announced by the President
on June 22.
We commend this Committee, along with other Members
of the Senate, who worked to fashion a bipartisan package of
anti-fraud initiatives as an amendment to S. 1970, the Omnibus
Crime bill.

Treasury worked closely with the Senate on this

amendment and we are optimistic that this bill will soon be in
conference with the House.

It is our desire to assist in

fashioning a package which will obtain the full support of the
Senate, the House, and the Administration.
While the primary responsibility and expertise concerning
criminal matters rests with the Justice Department, I would like
to share with you Treasury's views on some of the issues
contained in S. 1970 which we would like to emphasize, and for
which we would like to go on record as strongly supporting.
First, the President's June 22 announcement contained a
proposal which provides authority to freeze or appoint a receiver
for the assets of fraudulent S&L operators.

This provision was

included in S. 1970 as part of the bipartisan S & L fraud
amendment.

In order to prevent the dissipation or concealment of

assets prior to judgment in court enforcement actions and civil
recovery cases, this provision authorizes federal banking
agencies, the RTC, and DOJ to seek ex parte Federal court orders
to freeze the corporate and personal assets of defendants in
civil money penalty cases and civil liability cases.

- 8 -

Second, the president's announcement called for an
authorization of sixteen million dollars for 160 Internal Revenue
Service special agents and/or revenue agents to be used in
investigating violations of the Internal Revenue Code and related
statutes concerning the thrift industry.

S. 1970 includes a

provision which authorizes this request for the Internal Revenue
service, and we are pleased to support it.
The President also called for legislative authority that
would enable the Administration to make personnel from other
agencies available to the Department of Justice to assist in the
investigation and prosecution of fraud and other criminal acts
committed against thrift institutions.

This provision, which

was also included in the Senate's bill, would enhance the
available resources and interagency cooperation on thrift
industry crime.
In addition, we favor the provision of S. 1970 that allows
the claims of the federal government to take priority over other
claims in bankruptcy proceedings against officers and employees
of insured financial institutions.

This provision helps ensure

that the American taxpayer will be protected.

-

9 -

Moreover, we favor the closing of certain loopholes in
the bankruptcy laws that have enabled some S & L executives
to evade financial responsibilities for their misdeeds.

S. 1970

accomplishes this goal by prohibiting wrongdoers from hiding
behind the Bankruptcy Code.

In particular, we support the

provision in the bill prohibiting the discharge in bankruptcy
of liabilities resulting from a breach of fiduciary duty to a
financial institution.

We are all impatient to see S&L wrongdoers punished.

At the

same time, we must bear in mind that the pursuit of financial
criminals requires lengthy, complex investigation and prosecution
involving the probing of massive amounts of data and financial
records and the unwinding of sophisticated transactions designed
to mask fraud.

The Bush Administration has made this a high

priority and we are committed, as we know Congress is, to see
that wrongdoers are brought to justice.

Prompt legislative action by Congress will send a
message to the American people that their government is serious
about making the S&L crooks pay for their crimes.

These

initiatives will greatly aid the efforts of the Justice
Department and the banking regulatory agencies to find these
criminals and punish them.

As the President said when the

Administration proposal to address the savings and loan crisis
was introduced last year, we must do whatever we can to make sure
that a financial disaster of the magnitude of the thrift crisis
is not repeated.

Your efforts in crafting this legislation will

certainly help achieve that goal.

TREASURY NEWS

rtment of the Treasury • Washington, D.C. • Telellhone 5 ••-20.
CONTAC~:

~: R

PEL~ASE

: cl'j 24,

AT 4:00

l:: :1 )

P.~.

TREASURY'S WEEKLY BILL

Office of Financing
202/376-4350

OFFERI~G

The Department of the Treasury, by this public notice , invites
:enders for two series of Treasury bills totaling approximately
S18,400 million, to be issued August 2, 1990.
This offering
~~ll provide about $2,300
million of new cash for the Treasury, as
the maturing bills are outstanding in the amount of $16,097 million.
Tenders will be received at Federal Reserve Banks and Branches and at
~he Bureau of the Public Debt, Washington, D. C. 20239, prior to 1:00
p.m., Eastern Daylight Saving time, Monday, July 30, 1990.
The two series offered are as follows:
91-day bills (to maturity date) for approximately $9,200
million, representing an additional amount of bills dated
May 3, 1990,
and to mature November 1, 1990
(CUSIP No.
912794 VG 6), currently outstanding in the amount of $8,419 million,
the additional and original bills to be freely interchangeable.
182-day bills for approximately $9,200 million, to be dated
August 2, 1990,
and to mature January 31, 1991
(CUSIP No.
912794 VT 8).
The bills will be issued on a discount basis under competitive
and noncompetitive bidding, and at maturity their par amount will
be payable without interest. Both series of bills will be issued
entirely in book-entry form in a minimum amount of SlO,OOO and in
any higher S5,000 multiple, on the records either of the Federal
Reserve Banks and Branches, or of the Oep~rtment of the Treasury.
The bills will be issued for cash and in exchange for Treasury
bills maturing August 2, 1990.
In addition to the maturing
13-week and 26-week bills, there are S9,058
million of maturing
52-week bills. The disposition of this latter amount was announced
last week. Tenders from Federal Reserve Banks for their own account
and as agents for foreign and international monetary authorities will
be accepted at the weighted average bank discount rates of accepted
competitive tenders. Additional amounts of the bills may be issued
to Federal Reaerve Banks, as agents for foreign and international
monetary author11::ies, to the extent that the aggregate amount of
tenders for· such accounts exceeds the aggregate amount of matur·i ng
bills held by them.
For purposes of determining such additional
amounts, foreign and international monetary authorities are considered to hold S978
million of the original 13-week and 26-week
issues.
Federal Reserve Banks currently hold S1,004 million as
agents for foreign · and international monetary authorities, and S5,144
million for their own account. These amounts represent the combined
holdings of such accounts for the three issues of maturing bills.
Tenders for bills to be maintained on the book-entry records of the
Department of the Treasury should be submitted on Form PO 5176-1
(for I3-week series) or Form PO 5176-2 (for 26-week series).
NB-887

TREASURY'S 13-, 26-, AND 52-WEEK BILL OFFERINGS, Page 2
Each tender must state the par amount of bills bid for,
which must be a minimum of $10,000. Tenders over $10,000 must
be in multiples of $5,000. competitive ~enders must als~ sh~w
the yield desired, expressed on a bank d1scount rate bas1s ~1th
two decimals, e.g., 7.15%. Fractions may not be used. A s1ngle
bidder, as defined in Treasury's single bidder guidelines, shall
not submit noncompetitive tenders totaling more than $1,000,000.
Banking institutions and dealers who make primary
markets in Government securities and report daily to the Federal
Reserve Bank of New York their positions in and borrowings on
such securities may submit tenders for account of customers, if
the names of the customers and the amount for each customer are
furnished. Others are only permitted to submit tenders for their
own account. Each tender must state the amount of any net long
position in the bills being offered if such position is in excess
of $200 million. This information should reflect positions held
as of one-half hour prior to the closing time for receipt of
tenders on the day of the auction. Such positions would include
bills acquired through "when issued" trading, and futures and
forward transactions as well as holdings of outstanding bills
with the same maturity date as the new offering, e.g., bills
with three months to maturity previously offered as six-month
bills. Dealers, who make primary markets in Government securities and report daily to the Federal Reserve Bank of New York
their positions in and borrowings on such securities, when submitting tenders for customers, must submit a separate tender for
each customer whose net long position in the bill being offered
exceeds $200 million.
A noncompetitive bidder may not have entered into an
agreement, nor make an agreement to purchase or sell or otherwise dispose of any noncompetitive awa~ds of this issue being
auctioned prior to the designated closing time for receipt of
tenders.
Payment for the full par amount of the bills applied for
must accompany all tenders submitted for bills to be maintained
on the book-entry records of the Department of the Treasury.
A.cash adjustment will be made on all accepted tenders for the
d1fference between the par payment submitted and the actual
issue price aSLdetermined in the auction.
No deposit need accompany tenders from incorporated banks
companies and from responsible and recognized dealers
1n 1nvestment securities for bills to be maintained on the bookentry records of Federal Reserve Banks and Branches.

~nd.trust

8/89

TREASURY'S 13-, 26-, AND 52-WEEK BILL OFFERINGS, Page 3
Public announcement will be made by the Department of the
Treasury of the amount and yield range of accepted bids. Competitive bidders will be advised of the acceptance or rejection
of their tenders. The Secretary of the Treasury expressly
reserves the right to accept or reject any or all tenders, in
whole or in part, and the Secretary's action shall be final.
Subject to these reservations, noncompetitive tenders for each
issue for $1,000,000 or less without stated yield from anyone
bidder will be accepted in full at the weighted average bank
discount rate (in two decimals) of accepted competitive bids
for the respective issues. The calculation of purchase prices
for accepted bids will be carried to three decimal places on the
basis of price per hundred, e.g., 99.923, and the determinations
of the Secretary of the Treasury shall be final.
Settlement for accepted tenders for bills to be maintained
on the book-entry records of Federal Reserve Banks and Branches
must be made or completed at the Federal Reserve Bank or Branch
on the issue date, in cash or other immediately-available funds
or in Treasury bills maturing on that date. Cash adjustments
will be made for differences between the par value of the
maturing bills accepted in exchange and the issue price of the
new bills.
If a bill is purchased at issue, and is held to maturity,
the amount of discount is reportable as ordinary income on the
Federal income tax return of the owner for the year in which
the bill matures. Accrual-basis taxpayers, banks, and other
persons designated in section 1281 of the Internal Revenue Code
must include in income the portion of the discount for the period
during the taxable year such holder held the bill. If the bill
is sold or otherwise disposed of before maturity, any gain in
excess of the basis is treated as ordinary income.
Department of the Treasury Circulars, Public Debt Series
Nos. 26-76, 27-76, and 2-86, as applicable, Treasury's single
bidder guidelines, and this notice prescribe the terms of these
Treasury bills and govern the conditions of their issue. Copies
of the circulars, guidelines, and tender forms may be obtained
from any Federal Reserve Bank or Branch, or from the Bureau of
the Public Debt.
8/89

TREASURY NEWS

rtment of the Treasurv • Washington, D.C. • Telellhone 588.204
July 24, 1990

FOR IMMEDIATE RELEASE
Monthly Release of U_S. Reserve Assets

The Treasury Department today released U.S. reserve assets data
for the month of June 1990.
As indicated in this table, U.S. reserve assets amounted to
$77,298 million at the end of June, up from $77,028 million in May.

U.S. Reserve Assets
(in millions of dollars)

::nd
)f
'1onth

Reserve
Position
in IMF ~I

Special
Drawing
Rights ~/~I

Foreign
Currencies

11,065

10,396

46,803

8,764

11,065

10,490

47,294

8,449

Total
Reserve
Assets

Gold
Stock

~ay

77,028

June

77,298

1/

il

1990

11

Valued at $42.2222 per fine troy ounce.

~I

Beginning July 1974, the IMF adopted a technique for valuing the SDR
based on a weighted average of exchange rates for the currencies of
selected member countries.
The U.S. SDR holdings and reserve
position in the IMF also are valued on this basis beginning July
1974.

~I

Includes allocations of SDRs by the IMF plus transactions in SDRs.

il

Valued at current market exchange rates.

NB-888

TREASURY NEWS

artment of the Treasury • washington, D.C . • T...llhO ..... &&-204'
TESTIMONY OF THE HONORABLE
NICHOLAS F. BRADY
SECRETARY OF THE TREASURY
BEFORE THE SENATE COMMITTEE ON
BANKING, HOUSING, AND URBAN AFFAIRS

July 25, 1990

Chairman Riegle, Senator Garn, and Members of the Committee,
thank you for inviting me to discuss the modernization of
financial services regulation in this country, especially in
light of increased international competition for U.S. financial
firms and markets.

The Treasury Department shares this Committee's concern
about the international competitiveness of our financial firms.
As you know, ffnancial systems are undergoing dramatic changes
abroad, especially in Europe as part of EC 1992.

The trend in

the industrialized countries is clearly to explore the expansion
and diversification of financial services firms as a means of
benefitting wholesale and retail consumers and strengthening the
competitiveness of financial institutions.

While ours is still

the most innovative financial industry in the world, we are
looking over our shoulder more and finding our competitors
closing the gap.

NP ""?

- 2 At the same time, we are deeply concerned about the
relationship of financial services activities to deposit
insurance and other aspects of the so-called "federal safety
net" that applies to depository institutions.

Obviously, this

relationship is particularly critical in view of the cost of
making good on deposits in failed thrifts.

As a result, we have

added this crucial issue to the Treasury's comprehensive study of
deposit insurance mandated by the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 (FIRREA).

This study is not due until February 9, 1991, although we
intend to complete it by the end of this year.

As the committee

is aware, the project involves the cooperation and labors of all
of the relevant federal banking agencies, including the Federal
Reserve Board, the Comptroller of the Currency, the Office of
Thrift Supervision, the Federal Deposit Insurance Corporation,
the National Credit union Administration, and the Office of
Management and Budget.

Because we are now deeply involved in the study, it would
not make sense today to offer specific proposals for change.

In

fact, much of this testimony is necessarily descriptive rather
than conclusive.

Those who are hoping for an advance preview of

Treasury's study may, therefore, be left unsatisfied.

As I have

said, we expect to complete the study by year end and will be

-

3 -

presenting its conclusions and any legislative recommendations
early in the next Congress.

Nevertheless, I assure you that, with the thrift experience
so fresh in mind, we will not propose changes to the financial
services regulatory structure that would increase the taxpayers'
exposure.

But we must also bear in mind the relationship between

competitiveness and profitability on the one hand, and safety and
soundness on the other.

A system that produces institutions

that are less profitable and less competitive is inherently
unsafe and unsound in the long run.

And if you conclude that our

banking system is indeed becoming less profitable and less
competitive, and therefore less safe, then retaining the status
quo is not an attractive option.

Simply put, the task is to

enhance competitiveness while decreasing taxpayer exposure.

My statement today will set forth our current perspective on
financial services regulation in the United States; briefly
compare that to financial services regulation in Europe and
Japan, particularly in light of recent developments; and set
forth several guiding principles that we think should apply to
any proposal for change in the united States.

-

I.

4 -

Financial services in the united states

This committee has received countless pages of testimony
about the disjointed nature of financial services regulation in
this country.

Nevertheless, I believe it is useful to summarize

the current situation in order to underscore the importance of
changes occurring in international markets.

A.

The Traditional Banking Franchise

Through a series of laws passed beginning in the early
1900s, especially after the 1929 stock market crash and the
ensuing wave of bank failures, the government succeeded in
rigidly segmenting and protecting the business of commercial
banking in the United states.

Banks received a number of special

benefits, including deposit insurance, interest rate controls,
and a prohibition on the payment of interest on demand deposits.
Even before the 1930s, banks had gained ready access to the
Federal Reserve's discount window and payments system.

All of

this was a prescription for steady profitability in the banks'
traditional activity of short-term commercial lending to
businesses.

The flip side of this coin, of course, was heavy regulation
and supervision as well as the numerous restrictions on bank
activities.

Banks were prohibited from engaging in anything but

-

5 -

traditional banking activities, and there were strict limits on
geographic expansion.

For example, banks were sharply restricted from engaging in
securities activities by the Glass-Steagall Act of 1933, and the
later Bank Holding Company Act of 1956 curtailed their ability to
affiliate with firms engaged in insurance and commercial
activities.

Banks had limited branching rights within states and

were prohibited from crossing state lines by state laws, the
McFadden Act of 1927, and the Douglas Amendment to the Bank
Holding Company Act.

Moreover, the Home Owners Loan Act and the

Federal Home Loan Bank Act gave special privileges to thrift
institutions that allowed them to dominate the mortgage
business.

In short, the banking franchise created by the government
was protected, restricted and potentially quite profitable.
While banks were prohibited from engaging in most non-banking
activities, they were also sheltered from competition from firms
engaged in such activities.

In addition, because of limitations

on interstate banking, our system produced thousands of small
banks that prospered.

And even though the system generated a

complex web of state and federal regulation -- 50 state
regulators and three federal regulators -- it afforded both
stability and pluralism over a number of years.

-

B.

6 -

The Erosion of the Franchise

In the last two decades, however, the picture has changed
dramatically.

First, the benefits and protections of a banking

franchise have significantly eroded.

Interest rate controls are

gone, as is the ability to avoid interest payments on transaction
accounts.

More important, technology and changing markets have eaten
directly into the traditional banking business on both sides of
the balance sheet.

On the liability side, money market funds

with credit card and check-writing privileges now compete
directly with traditional bank deposits.

Thrifts and credit

unions now offer accounts and services that in many instances are
indistinguishable from those offered in commercial banks.

And

securities firms sell bank certificates of deposit in brokerage
offices around the country.

On the asset side, many of the banks' most creditworthy loan
customers, including blue chip corporations, now borrow directly
from investors in the commercial paper market at lower rates.

In

fact, in the past decade, commercial paper outstanding increased
nearly fivefold, from $112 billion in 1979 to $525 billion in
1989, while total commercial and industrial loans only doubled,
from $295 billion to $639 billion over the same period.

- 7 -

This competition for traditional bank business has produced
sUbstantial benefits for the consumer, including lower borrowing
rates and more choice and flexibility.

But it has also

diminished the franchise value on which the banking system was
built.

c.

The CUrrent Situation

How have banks responded?

Many banks have found their

lending concentrated in riskier lending activities due to the
erosion of the traditional business of lending at attractive
spreads to highly creditworthy customers.

These riskier

activities have included loans to less developed countries;
greater commercial real estate lending; regionally concentrated
energy and agricultural loans; and loans in highly leveraged
transactions.

This committee is well aware of the problems

associated with these activities, including the potential for
reduced earnings and higher provisions for loan losses.

On the positive side,

u.s.

banks have been innovative in

developing businesses in which they have regulatory freedom.

For

example, bank credit cards and automatic teller machines have
revolutionized banking for the convenience and benefit of the
American consumer.

Moreover, in response to the erosion of the

traditional corporate lending business, banks have expanded into

- 8 -

fee generating businesses like mortgage banking and financial
advisory work.

But as the traditional banking business has grown less
attractive, banks have also sought to expand into businesses in
which they were prohibited or "protected" from competing,
including securities, insurance, and other financial services.
At the same time, diversified financial companies have
aggressively sought to expand into the most attractive banking
lines of business in order to provide the full range of financial
products and services demanded by their customers.

Despite statutory and regulatory impediments, these efforts
to expand into new lines of business have succeeded in part.

A

limited degree of statutory change, particularly at the state
level, combined with regulatory and judicial interpretations of
existing law, has produced a new patchwork quilt of rules and
exceptions.

This new "system" allows some new activities and

geographic expansion, as summarized below.

Securities Activities.

Banks now have the ability to

engage directly or indirectly in a broad range of securities
activities, although with numerous restrictions.

They can engage

with few limits in the underwriting and dealing of u.S.
government and agency securities, general obligation municipal
bonds, agency-guaranteed mortgage-backed securities, and certain

-

9 -

kinds of municipal revenue bonds.

In addition, they may engage

in private placement activities, discount and full service
brokerage, and financial advisory services.

A recent court

decision has permitted banks to securitize loans that they have
originated or purchased.

Moreover, banks may serve as

investment advisors to mutual funds.

Finally, through recent interpretations by the Federal
Reserve of section 20 of the Glass-Steagall Act, bank holding
companies may establish non-bank subsidiaries that derive up to
10 percent of their revenue from a wide range of otherwise
prohibited securities activities -- including the underwriting of
corporate bonds and, at least in principle, corporate equities.
However, strict "firewall" requirements have been established to
limit transactions between the insured bank and its securities
affiliate.

In practice, the section 20 affiliates only benefit

the very largest banks, and only in a limited way because of the
strict firewalls.

Insurance Activities.

state legislatures in Delaware and

California have recently granted much more authority to banks
chartered in these states to engage in insurance activities.

The

courts have thus far upheld the general principle that bank
holding companies

including ones from outside the state -- can

take advantage of state insurance authority through the purchase
of a state bank.

However, such insurance activities must be

- 10 conducted within the acquired state bank or an operating
subsidiary (as opposed to a holding company affiliate, where it
would clearly be prohibited).

In addition, a number of banking

organizations have extensive insurance authority that has been
grand fathered under amendments to the Bank Holding Company Act.
Finally, recent legal and regulatory interpretations permit
national banks to sell title insurance, municipal bond insurance,
fixed rate annuities, and insurance nationwide from branches in
towns of fewer than 5,000.

And banks have been permitted for

some time to sell credit-related insurance.

Affiliation with Commercial Firms.

Through legal loopholes

that have opened and closed over the years, commercial and
diversified financial companies have acquired a significant
number of banks, principally through the earlier "nonbank bank"
exception to the Bank Holding Company Act.

Likewise, commercial

and diversified financial firms have long been permitted to
acquire thrift institutions.

The result is a number of major

companies that own both banks and other financial and commercial
concerns.

These firms include Sears, American Express, Merrill

Lynch, Household Financial, and a number of major insurance
companies.

However, these companies now have strict limits on

the operations of their banks, and other commercial and financial
companies have been prohibited from expanding into banking.

- 11 Geographic Expansion.

The states have taken interstate

banking into their own hands.

With few developments at the

federal level, a number of states formed regional compacts in
which interstate banking was permitted.

A number of these

regional compacts include so-called "nationwide triggers" (as do
certain individual states) which permit full interstate banking
on a reciprocal basis after 1991.

For example, California will

move to full interstate banking at the beginning of next year.

Nevertheless, despite this clear trend, a number of states
still restrict interstate banking, and in virtually all cases
banks are prohibited from branching across state lines.

This is

true even if the costs of interstate branching would clearly be
less than incorporating separate banks in separate states with
separate capital structures and separate management.

The result

is a haphazard expansion of geographic opportunities, which
includes numerous inefficiencies.

stepping back, then, how do we generally view the
competitiveness of the united states banking system?

We see it

as a system that, through ongoing changes in the marketplace,
appears to have outgrown its historical regulatory structure.
The result is overcapacity; layers of regulation; concentration
in the riskier parts of traditional commercial lending; uneven
product diversification, with rules and exceptions that sometimes

- 12 make little sense; and inefficient limitations on geographical
diversification.

II.

Developments in Europe and Japan

Let me now turn to the important changes taking place in
the global financial services market.

As you suggested in your

letter of invitation, I will focus my remarks on developments
in Europe and Japan and their impact on united states firms and
markets.

Before doing so, however, let me clarify that today's

discussion will not address in detail the degree of national
treatment accorded u.s. firms in these foreign markets.

Treasury

Under secretary Mulford has testified recently before both this
committee and the House Banking committee on national treatment
issues.

Preparation of the 1990 National Treatment study is

underway, and we will submit our detailed report to you by
December.

A.

The Challenge of EC 1992

The Treasury Department strongly supports the European
community's objective of economic liberalization.

The EC's

efforts toward the eventual goal of economic and monetary union
have significant implications for the United states and world
economy.

An Economic Policy Council (EPC) Working Group on

European Monetary Reform and Financial Liberalization, chaired by

- 13 the Treasury Department with participation from key agencies and
advice from financial regulators, is reviewing the implications
of these changes.

1.

The "Single Passport" Program

The new EC program for financial services is based on the
principle of "mutual recognition."

Essential supervisory rules

are harmonized among the member states, which agree to recognize
each other's national laws, regulations, and supervisory
practices that have not been harmonized.

Based on minimal harmonization of rules, a financial
institution established in any member state may provide certain
financial services through branches or across borders in any
other country in the Community under the supervision of the home
country.

This entire process is often referred to as the "single

passport."

The Second Banking Directive, which will take effect on
January 1, 1993, will allow EC banks to engage in activities
associated in the U.S. with commercial and investment banking.
It will be possible for any bank established in the EC to offer a
full range of services -- sometimes referred to as "universal
banking" -- throughout the European Community.

- 14 2.

Impact on U.S. Firms

The impact of EC developments on u.S. firms will depend,
first, on the extent to which they are applied in the context of
national treatment, and second, on the extent to which they
affect the ability of u.S. firms to compete.

The Second Banking

Directive provides for reciprocal national treatment and
effective market access.

Because the u.S. offers EC banks

national treatment, we believe u.s. banks will not be
discriminated against by the EC in the present environment.
Nevertheless, the European Commission has indicated that Glasssteagall and interstate banking restrictions in the united states
may be the subject of future negotiations.

In addition, there is

a grandfathering provision in the Second Banking Directive that
guarantees national treatment for those u.s. banks that establish
a European subsidiary prior to 1993.

Whether u.s. firms will be able to compete successfully is
more difficult to predict.

European banks that operate under a

variety of constraints in different markets will be able to
consolidate and focus their strategies.

Those in the u.S. market

will bring sharpened skills and improved products.

Moreover, let me mention one provision of u.s. law that may
adversely affect the ability of our firms to compete in foreign
markets.

The Federal Reserve's Regulation K imposes strict

- 15 -

limits on the absolute and relative size of equity securities
dealing, distribution and underwriting activities of overseas
subsidiaries of U.S. banks.

We welcome the Federal Reserve's

recent proposal to expand the limits on equity activities abroad
and will study carefully the proposed revisions.

Finally, let me make one other point.

It will be more

difficult for U.S. firms to compete on foreign turf when they
cannot provide the same services at home, because the knowledge
and expertise developed at home will be a crucial foundation to
gaining market share abroad.

B.

Developments in Japan

Let me now turn to developments in Japan.

The Japanese have

been moving incrementally for several years to liberalize and
modernize their financial regulatory structure.
describe their approach as "step by step."

They invariably

Financial services

are highly compartmentalized -- far beyond what we have in the
United States under the Glass-Steagall approach.

In addition,

regulation is burdensome, ad hoc, and not predictable,
particularly for newcomers and outsiders.

There has been some progress in liberalizing and opening
Japanese financial markets.

However, the pace of change on the

whole has been slow and the process of liberalization is not yet

- 16 complete.

Treasury has consistently and vigorously worked in the

U.S.-Japan Working Group on Financial Markets to accelerate this
pace of change.

The Japanese Ministry of Finance has been reconsidering the
Japanese equivalent of Glass-Steagall
of the Japanese securities Exchange Law.

embodied in Article 65
In various advisory

groups representing the banks and the securities industry, the
Japanese are debating financial deregulation.

Rivalries between

the banking and securities industries are intense, however, and
deregulatory steps are frequently a compromise among financial
players and regulators.

In short, the improvement in the international position of
Japanese banks has occurred in spite of an inefficient and
burdensome regulatory structure.

The positive causes of this

success include interest rate controls that affect the Japanese
saver and provide lower cost funds, the inclination to regard
banks as a major international competitive asset, a persistently
high current account surplus and a high personal savings rate.
These factors may help explain the increasing penetration of the
U.S. banking market by Japanese banks, which now account for
11.8% of all U.S. banking assets, compared to 20.6% for all
foreign banks in total.

- 17 You asked specific questions regarding the effect of
Japanese regulation on foreign competition.

The manner in which the Japanese regulate their banking and
securities markets gives their institutions competitive
advantages over foreign firms.

For example, interest rates on

more than 40 percent of bank deposits -- mainly at the retail
level -- are still regulated, and retail deposit taking is not
easily available to foreign banks without extensive branch
networks.

As a result, Japanese banks active internationally

gain a cost advantage, on a consolidated basis, to the extent
they still fund themselves domestically with regulated deposits
paying interest rates which are lower than would prevail in a
free-market environment.

Deregulation of interest rates and

development of an attractive money market in Japan have been
major issues in the U.S.-Japan Working Group on Financial
Markets.

The regulatory regime also allows for "main bank"
relationships between banks and non-financial firms.

This

pattern of cooperation between banks and businesses can also be
found in other countries.

Nevertheless, the extensive

interrelationship among banks and non-financial firms is
particularly dominant in Japan, and presents a difficult
challenge to U.S. financial firms seeking Japanese corporate
business in Japan and worldwide.

These relationships, apart

- 18 from other factors such as performance, contribute substantially
to the success of Japanese financial institutions.

Finally, the Japanese regulatory system involves superviso~
procedures, regulations, changes in policy and approval
requirements that cannot be readily grasped and easily accessed
in written documents.

Foreign financial firms are particularly

disadvantaged because the Japanese rely extensively on informal
consultation with leading domestic financial firms.

This is

especially true when rules are changed, or new procedures are
established.

While information appears to flow freely among the

domestic firms and the regulators, foreign firms have difficulty
breaking into the dialogue.

In the face of these regulatory and structural difficulties,
foreign penetration of the

Japanes~

banking market has been low.

For example, the foreign share of total deposits was only 0.8
percent, and of loans 1.7 percent in March 1989.
securities industry, however, some

u.s.

In the

investment banks have

fared better, as market opening measures have allowed foreign
firms, in a few areas, to exploit their expertise.

These areas

include the government debt market and derivative products.

In

other areas where foreign firms have considerable talent, such as
pension fund and investment trust management, they are still
effectively excluded.

The introduction of innovative financial

products has also been difficult.

- 19 -

III.

Competitive position of

u.s.

Banks

The discussion above demonstrates the contrasts and
similarities between the structure and regulation of our
financial services firms and the trends in the financial services
industry abroad.

It seems to me that there are lessons to be

learned both from the EC and from Japan.

In the EC, we see a

strong trend toward financial modernization which appears to lead
in the direction of EC-wide universal banking.

This process of

reform forces us to face up to the inadequacies of our own
regulatory system if we hope to keep up in the 1990s.

By contrast, despite the beginnings of change, the Japanese
regulatory structure does not appear to offer us an attractive
model for reform.

Rather, the well-reported success of Japanese

banks is a function of interest rate controls, a national policy
of treating banks as an important competitive asset, the trade
surplus, and a high savings rate.

In light of the developments described above, how do we find
our banks faring against their international competitors?
competitive position of

u.s.

The

commercial banks in global markets

today can be measured in different ways.

By many measures, we

are losing market share and competitive standing, both at home
and abroad.

On the positive side, in some areas our banks

- 20 continue to innovate and to develop new products and services,
such as financial advisory services, interest rate swaps and
various consumer banking products such as debit/credit cards,
electronic banking, and mortgage products.

In terms of assets, u.s. commercial banks have fallen behind
foreign commercial banks in the global banking market.

Foreign

banks have also increased their share of assets in the u.s.
market.

Specifically, u.S. banks' share of international banking

assets has fallen from 27.2 percent in 1983 to 14.1 percent in
1989.

Banks from Japan have increased their share of

international banking assets from 20.5 percent to 38.3 percent
over this period.

Banks in France and Germany experienced

moderate increases in their share of international assets in this
period, although British banks have retreated somewhat.

Part of

the u.S. international share decline reflects exchange rate
changes:

with a higher value of the Yen and European

currencies, the dollar value of foreign currency deposits abroad
is greater.

During this same period (1983 to 1989), foreign banks have
increased their share of U.S. commercial and industrial loans
from 21.4 percent to 28.5 percent.

While these figures indicate one important aspect of
competitiveness, one should not look exclusively at assets,

- 21 -

because size may not be a good indicator of performance.

Capital

strength, profitability, skill of management, and innovativeness
are all elements of international competitiveness where U.S.
banks have fared better than they have in comparisons of asset
size.

Nevertheless, U.S. banks have faced difficult times in the
late 1980s due to economic and structural factors beyond their
control.

These factors help explain the reduced competitive

standing of U.S. banks, and include:

o

the U.S. balance of payments deficit;

o

the relatively low U.S. personal savings rate;

o

the relatively high U.S. cost of capital;

o

the trend toward disintermediation; and

o

the structural rigidities of the U.S. financial system.

Given this situation, the Committee's review of the status
of the banking system and proposal for regulatory reform is
timely as is its consideration of the Fair Trade in Financial
Services Act of 1990.

We share the objectives of this bill which

is designed to open foreign financial markets and ensure
effective market access for U.S. firms.

As you know, however,

the Administration has opposed the bill because of our concern
that even limited reciprocity could invite retaliation and lead

- 22 to still further measures -- a slippery slope.

We are in the

process of reviewing revisions as the bill moves forward.

IV.

Guiding Principles for Regulatory Changes

As I mentioned at the outset, it is impossible to develop
specific recommendations for change in the

u.s.

system without

considering their broader relationship to deposit insurance and
other elements of the federal safety net.

The fundamental

structural issues that must be addressed in financial
institutions reform include the appropriate relationship between
banking and other financial services, and between banking and
commerce; the extent and usefulness of firewalls; and the extent
to which consolidated supervision is necessary -- all of which
are interrelated.

These and other structural issues will be

addressed in our study of deposit insurance.

Nevertheless, it

is possible to make some general observations and identify
several guiding considerations.

The overall considerations in recommending any changes to
the regulation of financial services must include:
competitiveness of

u.s.

financial firms and markets;

(1) the
(2) the

exposure of the taxpayer through the federal safety net; and (3)
the stability of the financial system.

Some have argued that the

first consideration conflicts with the other two -- that enhanced

- 23 -

competitiveness through broader powers will automatically
increase the exposure of the taxpayer and destabilize the system.

But is that necessarily so?

u.s.

banking organizations are

losing traditional businesses to new technologies and new
markets, yet they are not permitted to fully adapt to new lines
of business.

The result has been concentration in the riskiest

lines of permitted business, such as commercial real estate
lending, highly leveraged transactions, and loans to lesser
developed countries, that creates greater risk to the system and
the taxpayer, not less.

The ability to adapt prudently to

changes in the marketplace could reduce that risk by fostering
growth in fee income and diversification of funding sources and
asset risk.

Moreover, properly supervised diversification into

other financial activities could contribute to greater
profitability, diversified risk,

~nd

a stronger capital base.

Finally, it may also be possible to insulate the federal
safety net from the increased risk created by new activities.
The fact is that every developed country has some form of broad
safety net for its financial firms, yet most countries permit
their firms to engage directly or indirectly in a broader array
of financial services than we do.

At the same time, there have

been few substantial losses to their systems and none anywhere
near the magnitude of our thrift losses.

-

24 -

The challenge, then, is to devise reforms that will reduce
or contain the risk to the taxpayer while at the same time
increasing the long-term stability and competitiveness of our
financial firms.

It seems to me that there are a number of important
principles that ought to be embraced in any future recommendation
for change.

1.

These are set forth below.

Capital.

Broader activities for banking

organizations ought to be linked to strong capital requirements,
preferably risk-based.

We learned all too painfully from the

thrift crisis that a crucial protection for the taxpayer is
requiring firms to have a SUbstantial amount of their own money
at risk to absorb losses.

This Administration has consistently

insisted on prudent capital requirements for financial firms that
have the potential to expose the government to losses, whether
they are thrifts or government sponsored enterprises.

Moreover,

the Federal Reserve Board recently testified before this
committee that enhanced capital is a critical element of any
proposal for reform.

Reliance on stringent capital requirements and increased
market discipline can serve as an offset to excessive regulation.
And to attract sufficient capital, banks must be profitable.
Thus, any regulatory reform must be undertaken with a view to

- 25 -

enhancing the profitability of our system.

To put it another

way, the surest way to threaten the safety and soundness of our
financial system is to render it unprofitable.

2.

Uniformity of Regulation.

Our system of regulation

has become a hodge podge, gerry-built structure of rules and
exceptions.

Whatever direct or indirect activities are

authorized for banking organizations, they ought to be
authorized on an equal basis for comparable institutions.

We

need rational regulations consistently applied.

3.

Functional Regulation.

The Treasury Department has

long supported the concept that the primary regulation of
financial activities should be by function, rather than by
institution.

In general, we believe that a firm's securities

activities should be regulated by the securities and Exchange
Commission; its banking activities by the banking regulators;
its insurance activities by the state insurance authorities; and
so on.

This is more efficient than having different agencies

each regulate a range of different functions.

4.

Streamlining Regulation and Supervision.

Our

system now has three federal bank regulators; one thrift
regulator; one credit union regulator; and 50 state regulators.
Regulations and regulatory responsibilities are often overlapping
and duplicative.

The banking supervisory structures of most of

-

26 -

our major competitors are, by contrast, more unified and
coherent.

As we explore the reform of our financial

institutions, we will also need to explore the reform of our
regulatory structure -- although, to be frank, the inevitable
turf fights involved may prevent the full achievement of this
goal.

5.

Efficient Geographic Diversification.

Interstate

banking permits banks to diversify and avoid being too closely
tied to the vicissitudes of local economies.

Because of the

actions of state legislatures, full interstate banking is fast
becoming a reality.

As of January 31, 1990, only four states did

not permit some degree of interstate banking.

Yet interstate

branching is for the most part prohibited, even though it will
entail lower costs than establishing separate banks in separate
states with separate capital structures and separate officers and
directors.

Any reform proposal should carefully examine the

concept of interstate banking and permit market participants to
determine whether it is more efficient to branch or to establish
separate subsidiaries.

6.

International Convergence and Harmonization.

with

the increasing interdependence of national financial systems, we
support international efforts toward convergence and
harmonization where appropriate of the supervision and regulation
of financial firms.

The Basle agreement on risk-based capital

-

27 -

promises to be successful, and we can expect this type of
convergence effort to extend to other kinds of activities.

It

is imperative, as other systems develop and progress, that we
keep pace; we should not be left behind from any movement toward
the standardization of the rules governing the international
provision of financial products and services.

7.

Market-based structures.

Much has been written

about the appropriate structure of financial firms that have
access to the safety net.

(1)

The three basic models are:

the u.S.-style holding company, in which banking

activities are carried out in a banking subsidiary of the
holding company, and non-banking activities are carried out
in separate subsidiaries of the holding company;

(2) the English and Canadian-style universal bank, in which
banking activities are carried out in the bank, non-banking
activities are carried out in direct subsidiaries of the
bank, and no separate holding company exists; and

(3) the German-style universal bank, in which a single
entity engages in all banking and securities activities
directly but through segmented departments.

- 28 -

It is difficult to imagine the German-style universal bank
structure with our current system of deposit insurance.

In

evaluating the holding company and subsidiary models for
separating banking and non-banking activities, we should start
from the premise that market participants should decide the
appropriate structure for their own organizations depending on
their own particular circumstances, so long as this does not
create supervisory problems.

8.

Glass-Steagall.

The fact is that Glass-Steagall is

no longer the rigid wall between banking and securities that it
once was.

Increasingly, firms engage in both banking and

securities, but under a set of rules and exceptions that is
sometimes arbitrary and inefficient.

These rules need to be

rationalized.

9.

Enforcement.

There is no SUbstitute in a market

driven industry with strict fiduciary obligations for quality
management of high integrity.

Just as there should be ample

shareholder capital at risk, so too must there be managers of
integrity.

I have said before during our difficult debates on

FIRREA and I will say it again, civil and criminal violations
will be prosecuted to the fullest extent of the law.

- 29 -

v.

Conclusion

Mr. Chairman, that concludes my remarks.
answer any questions you may have.

*

*

*

*

I am happy to

TREASURY NEWS

Irtment of the TreaSUry • washington, D.C .• Telellhone 5&&-204'

For Release Upon Delivery
Expected at 1 p.m.
July 25, 1990
STATEMENT OF
MICHAEL J. GRAETZ
DEPUTY ASSISTANT SECRETARY (TAX POLICY)
DEPARTMENT OF THE TREASURY
BEFORE THE
SUBCOMMITTEE ON COMMERCE, CONSUMER AND MONETARY AFFAIRS
COMMITTEE ON GOVERNMENT OPERATIONS
UNITED STATES HOUSE OF REPRESENTATIVES

Mr. Chairman and Members of the Subcommittee:
I am pleased to have this opportunity to present the views of
the Treasury Department on the advisability of a Federal tax
amnesty program.

The views we shall express here today are necessarily of a
general nature. As you know, current interest in a Federal tax
amnesty has been sparked largely by the widespread experience
during the last decade of state tax amnesty programs. These
programs, however, have been as varied as the states that conducted them.
There is no specific amnesty proposal before this Committee
for consideration. Our testimony focuses primarily on a potential Federal tax amnesty program under which certain penalties
would be waived for taxpayers who admit voluntarily to failing to
pay the correct amount of tax in the past and who pay the full
amount of the unpaid tax, including interest due.
We believe that such a general Federal tax amnesty program
would be unwise. First, contrary to certain extravagant claims,
we do not believe a Federal amnesty program would raise large
additional rev~nues, and there is a risk that such a program, in
fact, might lose revenue. Most states did not have effective
income tax enforcement systems in place when their amnesty programs were instituted, and those state amnesty programs that have
been most successful in raising revenue generally were coupled
with increased enforcement efforts -- enforcement efforts that

NB-890

-2already are a part of the Federal tax system.
The Treasury
Department is also concerned about the actual and perceived ~air­
ness of a Federal amnesty program, as well as about the po~slble
adverse effects of an amnesty on taxpayer morale and compl1ance.
Carefully targeted relief from tax penalties for ~axpayers
who step forward to pay unpaid or understated,tax:s m:ght be,
desirable in some cases, but only if such rel1ef 1S 11nked ~lth
significant, additional enforcement programs, such as new w1thholding requirements.
We caution, however, that even befor:
targeted relief is provided, Congress should carefully cons1der
the trade-off between collecting unpaid taxes, on the one hand,
and the potential for damage to the voluntary compliance system,
on the other hand.
My testimony today has three parts.
First, I shall describe
briefly the experiences of the states with amnesty programs.
Second, I will outline important differences in the state and
Federal systems that make it difficult to translate the states'
experiences to the Federal level.
Finally, I shall review the
revenue implications of a Federal amnesty program and explain why
we believe substantial revenue increases would be unlikely.

I.

STATE AMNESTY EXPERIENCE

Beginning in December 1981, with Illinois, 29 states and the
District of Columbia have conducted some form of an income tax
amnesty program.
Connecticut and Maine have scheduled tax
amnesty programs for September 1 and November 1, 1990, respectively.
Three states, Florida, Illinois and Louisiana, have
offered two tax amnesty programs.
No agreement currently exists on the degree of success or
failure of state amnesties, largely because data relating to the
long-term effects are not available.
Moreover, the specifications and conditions of amnesty programs have varied considerably
from state to state.
In general, state amnesty programs have
offered reduced penalties to those individuals or corporations
that voluntarily come forward and correct their situation with
the state tax authorities.
Some state programs have required
amnesty applicants to pay interest and penalties, but with a
reduced penalty rate; other programs have waived all penalties
and interest.
None have forgiven the actual tax liability.
State amnesty programs also have differed as to eligible
participants. All state programs have included nonfilers.
state
programs, however, have varied concerning the eligibility of
taxpayers who filed returns but underreported their taxes.
Some
state programs have allowed participation by people who are under
investigation, or even with identified tax arrears.
A number of states have included accounts receivable under
their amnesty programs.
These accounts receivable represent tax
liabilities that state tax authorities had already ident