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Treas.
HJ
10

.A13P4
v.335

U.S. Department of the Treasury

PRESS RELEASES

'::NEWS

I~E~ASURY

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C. • 20220 • (202) 622-2960

FOR IMMEDIA1E RELEASE
June 1, 1994

~.;

,.' f·

:.CONfACT: Scott Dykema
(202) 622-2960

BENTSEN NAMES BEERBOWER TO KEY TAX POLICY POST
Treasury Secretary Uoyd Bentsen today appointed Cynthia G. Beerbower as
Deputy Assistant Treasury Secretary for Tax Policy, replacing Samuel Y. Sessions.
Beerbower, who had been Treasury's international tax counsel, takes over her new
responsibilities June 13. Until a replacement is found, however, Beerbower will remain
in charge of the international tax office.
Sessions resigned from his post to begin pre-medical studies this summer at
Goucher College in Baltimore, Md. Before serving at Treasury, Sessions had been the
chief tax counsel on the Senate Finance Committee and before that was an aide to thenSenator Bentsen.
Before joining Treasury last August, Beerbower was a partner in the New York
law firm of Simpson, Thacher and Bartlett. She joined the firm in 1977 as an associate.
Beerbower, 44, has an LL.B. with honors from Cambridge University, a J.D. from
Boston University and a B.A magna cum laude from Mount Holyoke College.
She is married to John E. Beerbower. They have a son and a daughter.
-30-

LB-860

NEWS
OFFICE OF PUBUCAFFAIRS -1500 PENNSYLVMnAAVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960

Adv. 1:15 p.m. (8:15 a.m. EDT)
Text as prepared for delivery
June 3, 1994

REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
CONSOLIDATED BRITISH INDUSTRY

LONDON,ENGLAND
I've been lookin, forward to joining you today bctause I believe we have a
number of shared interests •• such as investment, and trade, economic security, growth
and sh.rcd prosperity. I want to spend a few minutes discussing those with you today_
But first, I want to look back about IS month!. That's the last time I was in London. A
great deal has changed since then as far as the United States is concerned.
I'd barely had a chance to hang pictures in my office when I found myself in
London for a G·' meeting. It was one of those fly-in on the overnight, then fly-out
almost immediately sort of meetin&s. It lave me a taste of the sort of jet lag I was in for
with this job.
At any I-ate, my colleagues wanted to know if the Clinton Administration was
serious about what we had in mind (or the eronomy -- deficit ."eduction, creating jobs,
turning things around. The proof of the pudding is in the eating •• or in the figu"es in
this case.

We have turned things around. Our deficit is coming down, and far faster than
we thought at the outset. Th.t',. major relief to our businesses, and I suspect to yours,
since we're freeing up capital for investment.

In additioD, we've created nearly 3 million new jobs since taking office at Ian
count, and new figures are coming out later today. Wetre well on the way to the 8
million we are hoping for.

LB-861

(MORE)

2
Innation does not seem to be a (actor now. It looks like it will stay that way for
some time. As you're well aware, it's always a challenge to turn an economy around,
.'estore growth, and then sustain it without touching off inflation.
Beyond holding innation in check, we've restored a very steady, solid growth rate
to our economy. The fundamentals of our economy are in great shape. J haven't seen it
like this in 20 years.
That's quite a turnaround. And I'd note that England's economy is on the way
back, and it looks like the rest of Europe may not be too (ar behind. That's very
encouraging.
From what things looked like 15 months ago when I first visited London as
Secretary, there's been considerable improvement •• everywhere.
Some of this is due to our shared commitment to do what is necessary to get
recovery behind us. It's shared progress on interest rates, progress on bringing down
defidts, progress on bringing down unemployment, progress in restoring growth -- all
signs that the recession truly is being broken.
We have more in common than shared pr0l:ress. That shared progress is, in fact,
to a large degree the result of 8 partnership -- a business partnership that has evolved
from our personal relationship. Look at the growth each of our nations is enjoying. It
is encouraged and assisted by our mutual Willingness to invest in one another's ideas.
Being both friends and partners has been good (or both of us.
Those of you who follow where money is nowing know that Japan had the largest
investment in the United States in 1992. But the recession in Japan has meant a
significant drop in what they're investing. The preliminary numbers show that UK
investment in the United States is up by nearly $10 billion for 1993, with total
investment of well over S104 billion, again exceeding Japan.
If you look at our economy, there's nearly $420 billion in foreign direct
investment in the United States. And we have invested nearly $490 billion abroad -- the
largest single share of it here in the United Kingdom. That's a clear sign of our faith in
this economy.
Here, in Great Britain, foreign-owned firms account for nearly 14 percent of the
assets, and almost a quarter of all sales, and 15 percent of aU employment. In the
United States, it is about 18 percent of assets, 16 percent of sales, and almost 11 percent
of employment.

3
There's a very clear reason for the high levels of investment. and that's our
shared commitment to open economies. Globally, the more open economies are, the
better off we all an. If you take Japan, for example, under 1 percent of the assets in
Japan are in forei&n.owned firms, just 1.2 percent of the sales come (rom that, and one·
half of one percent of Japan's employment is attributable to foreign direct investment.

That's why we're workin& hard to open markets and liberalize opportunities for
investment. Last week the Japanese agreed to resume our discussions about opening
their markets to the products of all nations.
We have a solid trading reJationship - have had for a long time. Just as is the
case in investment, it is also the case with trade. Openness is better.
I have asked our Congress to move rapidly to put the Uruguay Round of the
General A&reement on Tariffs and Trade into force for a number of reasons. First, I
want the effects of the Uru&uay Round to take hold in our e~onomy as quickly as
possible. I won't go through thE" numbers here today, but they are substantial. I also
have asked Congress to move quickly because, quite frankly, this is an issue of
leadel'ship.
You may be aware that while the agreement will generate far more in revenue for
my government than we will lose from lowering tariffs, we are on a pay·as-you-go basis
insofar as the budget is concerned. We must find ways to raise revenues to replace what
we will lose, and as the Prime Minister and any politician knows, none of the choices 3re
easy ones to make.
However. this is largely a procedural hurdle that we face. This isn't at all like
the scrap we had on NAFTA. Opposition has not mobilized the way it did with NAFTA.
But the longer we wait, the more time an opponent has to organize. We'll deal with the
issue of replacing revenues. We'll get past that. The President and I are committed to
havinl the Uruluay Round in effect as quickly as possible .- well before the European
Union ratification protess is complete.

We all want the Uruguay Round (or what it will do for sharing prosperity,
spreading prosperity _. encouraging recovery and growth, encouraging development
throughout the world.
One final point on the Uruguay Round from the business perspective. I asked
our economists to take a look at what the Uruguay Round means in terms of a tax cut
for businesses and consumers all over the world. They told me that the Uruguay Round
means a tax cut among industrial countries of about S975 billion between 1995 and 2004
-. that:s nearly $~ trillion. The economists also report that if you factor in developing
countrIes, where Imports are generally smaller but tariffs are higber, then it amounts to
a global tax cut of between U.S trillion and 52 trillion over the next decade.

4
Encouraging growth, sharin, and spreadine prosperity and the economic security
that will create is the other issue on which I'd like to focus.
I've looked back over the past 15 months, and if you'll permit me, I'd like to look
back over the past SO years just briefly, in the con tnt of security.
In 1944 and 1945, the challenge of my generation was, quite simply, to win the
war. We had to turn out a ship I day,8,000 planes a month. Our nations sacrificed
heavily -- in men, in materiel - to achieve our victory for democracy. It was a victory
as much of ideals and ideas as it was a military success. Afterwards, while Western
Europe was rebuilt, the chaJlen&e was to wait out communism, preserve the peace.
We have now reached a new era, with new challenges. It's time to focus on
shaling prosperity, because prosperity -- and the economic security tbat flows from it -is as critical to our future as the ability to turn auto plants into tank plants.
In Europe, nowhere is it more important to share prosperity, and encourage
economic security, than in the nations of the East whose economies were cruelly abused
for so lon&.
Substantive progress has been made in some areas -- like PoJand, where the real
growth rate is 4 or 5 percent for two years running, where the private sector now
accounts for half of the national output. There has been progress in Russia. enough so
that the International Monetary Fund released a second loan of S1.S billion. Innation is
down, but it must come down more. Let me also add here a word of congratulations for
the EBRD and President Jacques de Lsrosiere. He has streamlined the bank and put
more people in the field where their impact is the greatest. The bank tan now better
assist the transition to market economies and encourage private enterprise in the region.
There is much more that must be done. Investment flows where the conditions
are rigtlt. Throughout the region budget deficits need to come down. Financial systems
must be revamped and strengthened. Contract law must be strengthened.
This will not be an overnight undertaking. We, and the people of Central and
Eastern Europe, and Russia, must have patience. In time, the economic reforms that
must be accomplished will help share prosperity and sustain democracy. And economic
security will sustain and reinforce national security throughout the world.
The United States is committed to encouraging growth and sharing prosperity,
both because it is our nature and because if is in our interest. Our economy gains
because it means prosperity for Americans as growth occurs elsewhere and markets for
our products are broadened. It translates directly into jobs for our citizens.

Obviously, it also means greater stability in the areas of Europe that are now
working to put market principles to work in their economies. But beyond that, it means
a contribution to greater peace and stability - in Jericho, and in Capetown. Stable,
healthy economies are a path to peace, not a cause for conflict.
In addition, shared prosperity encourages freedom. Most of the wealthier nations
are democratic, and have the broadest human rights. One of the reasons President
Clinton decided to renew MFN status for China was that denying that special trade
status made no contribution to improving the life of the Chinese people, but continuing
MFN status offers that promise. And an improving economic status can encourage
greater economic and political freedom. We will, of course, continue to work both
directly, and with others, to convince China that greater human rights are a necessity.
H growth and sharing prosperity is our goal, the question is how do we achieve it?
The Clinton Administration has taken on this new challenge aggressively because of its
importance not only to our ecoTI'Jrny but also to those of other nations as well.
Putting our economy on a sound footing was the first response. It was a
prerequisite. We cannot hope to influence the broader global economy in a positive way
unless our own economy is healthy. We have also encouraged others to do as we have
done.
Second, because open markets can create prosperity for alI, we have pressed our
case with Japan, with our neighbors through the North American Free Trade Agreement,
and globally through the Uruguay Round.
Third, to strengthen growth and address our common problems, we are
coordinating our policies on a number of fronts through a variety of multilateral
arrangements - the G-7, the G-IO, the APEC organization, even NATO and its
Partnership for Peace. I would point out that the decline in defense spending that the
new national security picture permits frees up resources for economic security in many
nations.
Fourth, we have begun pressing the international financial institutions to make
better use of their monies, to support rather than supplant the private sector, to pay
more attention to human development as an ingredient in national economic
development, to promote development from the bottom up.
As part of this approach, we have recognized our responsibility to catch up on our
contributions to the development banks. They are such a critical element -- in Europe,
in Asia and the Pacific, in Africa, and in the Americas -- and we must meet our
obligations there.

6
The past half century has seen prosperity uplode, in the United States, among
the rest of the major industrialized world. It's amazing to think how far we've come in
the United States in 50 years. In those days, only one family in three had even ~ ~ar.
Today, if there's a teenager in the family, more than likely!!.!!! family has ~ cars.
Today, countries which began from bases that might better fit the definition of the
developing world are now important economic powers.

Real per capita incomes today in the OEeO nations are about $20,000 a year, but
it's one-twentieth that in the East Asian countries under communist rule, and the same
in sub-Saharan Africa. It's one-eighth that in Latin America, the Middle East and
North Africa, and one-tenth that in the market economies of Pacific Asia, other than
Japan.
The challenge is clear _. to create growth and share prosperity, to improve lives,
and to provide economic security. The United States is committed to meeting that
challenge.
-30-

DEPARTMENT

THE

TREASURY

NEWS
OFFICEOFP

~ANIAAVENUE,

N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

Adv. 1: 15 "p .'m., . (8,::15' a ',m'. EDT)
June 3, 1994
BENTSEN DISCUSSES U.S-U.K. RELATIONS, GLOBAL GROWTH
LONDON, England -- Treasury secretary Lloyd Bentsen said
the world's new challenge is to share the prosperity and
economic security that growth can bring.
Fr~day

"We have reached a new era, with new challenges," Bentsen
said in remarks prepared for delivery to the Confederation of
British Industry, an organization of the UK's largest businesses.
"It's time to focus on sharing prosperity, because
prosperity -- and the economic security that flows from it -- is
as critical to our future as the ability to turn auto plants into
tank plants," add Bentsen, a World War II veteran in England to
participate in D-Day commemorative activities.
"The Clinton Administration has taken on this new challenge
aggressively because of its importance not only to our economy
but also to those of other nations as well," he said.
"The United States is committed to encouraging growth and
sharing prosperity, both because it is our nature and because it
is in our interest.
Our economy gains because it means
prosperity for Americans as growth occurs elsewhere and markets
for our products are broadened.
It translates directly into jobs
for our citizens," Bentsen said.
Bentsen said that in Europe nowhere is it more important to
"share prosperity, and encourage economic security, than in the
nations of the East whose economies were cruelly abused for so
long."
He said that economic security in that region can
underscore and support national security for Europe.
The Treasury Secretary outlined the manner ~n which the
United States is encouraging growth and shared prosperity, with
more open markets through the Uruguay Round and other vehicles,
through the activities of the multilateral development banks, and
even by bringing down U.S. deficits because setting the U.S.
economic house in order, he said, frees up money for investments
that can produce growth.
(OVER)

LB-862

Bentsen also revlewed sl~larltles ln the U.S. and U.K.
economles, and noted thelr openness has led to slgniflcant
lnvestment flows
Great Britain, he said, resumed its place as
the largest lnvestor In the United states in 1993, with a total
of $104.5 b1llion in foreign direct investment, according to
prell~nary flgures.
Japan led 1n 1992.
He noted that foreign-owned firms account for nearly 14
percent of all employment 1n Great Br1ta1n, and 11 percent in the
Unlted states, largely because of their open economies. But in
Japan, he said, where just 1 percent of assets are foreign owned
-- as opposed to 14 percent in Great Britain and 18 percent in
the United States -- one-half of one percent of employment is
attrlbutable to forelgn f1rms.
-30-

DEPARTMENT

TREASURY

NEWS

lRFASURY
OFFICE OF PUBliC

THE

AVENUE, N.W.• WASHINGTON, D.C. • 20220 • (202) 622-2960

Adv 10 a.m. (5 a.m. EDT)
Text as prepared for delivery
June 4, 1994
REMARKS OF TREASURY SECRETARY LLOYD BENTSEN

CAMBRIDGE AMERICAN CEMETERY AND MEMORIAL

CAMBRIDGE, ENGLAND
President Clinton, Prime Minister Major, distinguished
guests, and fellow airmen, here listening, or here at rest.
War is a terrible thing, but at times necessary.
It places
demands on men and women, who must fight and sometimes die, on
families who must wait and hope, and on nations, which must
divert their resources to the weapons of war, as we did 50 years
ago.
Today we honor those who flew, and those who supported them.
They pa~d a terrible price -- nearly 44,000 dead or ~ssing in
the Eighth Air Force alone.
Here in England -- as we did at every airfield and on every
front -- boys grew into men far too fast.
Here, airfields
operated 24 hours a day, the Americans flying by day, and the
British by night.
They circled these green fields and assembled,
heading for Europe in formation.
COming back, they were strung
out across the Channel, fewer in number -- a feathered prop, a
smoking engine, holes in the fuselage where a gunner once stood.
A red flare arcing up on the approach to bring the medics for the
wounded.
And green ... green flares for those who beat the odds,
made their 35 missions.
They squeezed the oxygen hoses to break up frozen breath
clogging their face masks.
They cranked down their landing gear
by hand because the hydraulics were shot out. The ground crews
cheered when the~r plane made it home.

(MORE)

LB-863

That's how ~t was on the way out and the way back. At the
target, a pllot six feet tall at the start would be S feet at the
end from squeezing down in the seat. The flack would come up in
black clouds. That flak gear -- every flyer wished it was a
suit, not a vest. Planes disintegrated in flight, a shell
through the wing tank, One minute a plane's out front. The
next, the one behind is flying through the debriS, counting
parachutes, praying they're not next.
Scared? Of course. Anyone who wasn't was either a fool or
had no imagination. But they pressed on. It was love of
country, and all it stood for, home, family, because it was
expected of them. And it was the knowledge that the nation was
pulling together, every family and friend, every farm and
factory.
Numbing fatigue, Faceless danger. Fiery death. These were
an airman's constant companions. In the face of this, these men
not only flew and fought, they soared and triumphed. Many never
had the chance to walk the land their sacrifice helped liberate.
But they live on today on the wings of our dreams -- dreams of
freedom. Ever vigilant, courageous, heroes everyone. May they
rest in peace.
Those of us who flew had a job -- take control of the air,
shut down the industries, destroy the fuel supplies and
reflner1es, cut the supply lines, support the landings. That
took considerable time -- two years of work before the invasion.
With us much of the way were men like Ed MacLean, a P-47
pllot who logged 9S missions during that long war.
Men like Ed MacLean took on extraordinary risks, alone, so
that Europe could be freed. He flew escort missions for our
bombers, shepherded our gliders to Normandy, and supported the
3rd Army. He earned the Distinguished Flying Cross and the Air
Me~l with 16 clusters. Ed, on behalf of every bomber pilot who
enJoyed the protection our fighter planes, thank you. Ladies and
Gentlemen, Ed MacLean.
-30-

DEPARTMENT

THE

'l'RRASUR¥
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NEWS
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. • WASHINGTON. D.C .• 20220. (202) 622-2960

OFFICE OF PUBUC AFFAIRS • 1500 P

FOR lMMEDlATR RELEASE
JUNE 7, 1994
OPtc:NlNG STATEMENT OF TREASURY SECRETARY LLOYD BENTSEN
OECD PRESS CONIt'"RRENCE
PARIS, }1'HANCE

Good morning. The economic. picture has t:hau2cd significantly "ineo I was last
here. The U.S. economy i. doing qnite well. Th~ dcficit'5 down, steady growth is tlar,k.
wt:'rco'cating jobs, and inflation i~ not a thrt3l. We can also now see Sjgll~ of rp.(".overy
elsewhere ill the industrial world. Ole IJro~p~u in developing areas are encouraging, and
the worst may be over i": Ihe rCrormill~ countries of central and ca~t~rn Europe.
However, we cannot rcJeu. Japan and Europe must strrngthcn thefr recu"ed~.
And it will takp. more thall iulerest rate euts or {i.cal iuppnrt for recovery. Il will
require structural reruflll5 - the kind that encourage ~mplo)'crs to aud jobs, not mnl(c it
too

('.o~Uy

to be worthwhile.

We had a draft study on emploympnl and unemployment at the C· 7 jobs
confen:ucc: in Detroit and it clearly show~ how betn~r policies can help cr~'lte jobs. J

hope the OECD keeps up this kinci of work and
recommcndations.

~he.s

us some specific policy

There has been significam prua.:rcs5 in the past ye~lr, but the C'hAl1pnge now is tu
ensure that the ct'CO'Ycry in Jnduslrial countries spre.1ds and strengthens.
Two other very (luick poinu. J want to let YOll know thf. United Stat~ is
commiUpA to have the Uruguay Round approved this y€'.ar. ~o it can be implemented by
January 1, 1995. It's important to our growth. 1 ('An td' you that the Europeans and
Japanese Clre as committed to this as we are.
And last, we are today resuming our finand.d services disc unions with Japan
under thc framework. This is a rr.al priorIty for us. 1 find it encournglng :lS far as the
framework is concerned fhat we're back to taJkiuJ,: 32aill. That's a good sign.

-30-

LB-864

OffiCE OF PUBUCAFFAIRS -1500 PENNSYLVANIA-AVENtJKN.W.• WASHINGTON, D.C .• 20220. (202) 622·2960

Adv.lO:30 a.m. (4:30 a.m. EDT)
Trxt as Prepared for Delivery
June 7. 1994

REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
ON PROMOTING GROWTH AND EMPLOYMENT
OEeD MINISTERIAL MEETING
PARIS, FRANCE
Chairman Ahern, Secretary-General Paye, fellow delegates: When we met last
year, the outlook was uncertain. The U.S. recovery was underway, but job creation was
ver~· slow. Congress was still discussing deficit reduction. Europe and Japan were in
the grip of recession. The Uruguay Round was still under negotiation.
Today, some of these clouds have been lifted. The U.S. recovery has strengthened.
OUf gro\\1h rate is solid and steady. Our ei:onomy has created more than 2 million jobs
o'yer the last year. President Clinton's program to reduce our budget deficits by $500
billion over five years is in place. And, despite a strong recovery, inflation remains
subdued. I haven't seen the fundamentals of our economy this solid in 20 years.
In other parts of the industrial world~ signs of recovery are becoming evident.
The Uruguay Round has been successfully concluded. There is increasing optimism
about sustaining the gains made in recent years in reducing inflation.
Economic prospects in other areas look better too. Growth in the developing
countries in Asia remains impressive. Reforms that encourage and enhance growth are
spreading in Latin America. The worst of the transition may be over in the reforming
countries of eastern and central Europe.
But we must not relax. Recovery in continental Europe remains tentative, and
employment is likely to dei:line again this year. There are signs that a re<:overy in Japan
may be at hand, but strong domestic demand-led growth is not yet in sight.

(MORE)
LB-865

Both Japan and Europe must act to strengthen their recoveries. This is essential
to ha'"ing balanced. sustainable expansion in the OEeD. It is absolutely essential if
unemplo)ment in Europe is to come down. I hope that Japan will provide strong and
sustained fiscal SUpp01t for recovery. In countries where substantial slack still exists,
the monetary authorities should be prepared to reduce interest rates further to ensure a
strong recovery.
But macroeconomic policies are not enough. We must also eliminate obstacles to
expanding the scope for private sector initiative in our economies. Structural
reforms can enhance the capacities of our economies to grow, and new technologies can
create good jobs.

gro~th by

At the G-7 Jobs Conference earlier this year in Detroit, my colleagues and I

benefited greatly from the draft employment and unemployment study prepared by the
OECD. This study focuses both on macroeconomic and structural factors in
unemployment. It clearly shows how better policies can help to create jobs. I hope the
OECD will continue its work in this area, including the presentation of specific policy
recommendations for measures that individual countries could take. We also believe it
would be helpful to analyze the issues that arise as our economies exploit the potential
of ncw technologies to create jobs and boost incomes.
We've come a long way in the past year. The challenge now is to ensure that the

recovery in industrial countries spreads and strengthens, to let it create more jobs for
our people, and to make the structural reforms that raise the efficiency of our economies
and produce rising real incomes. We can meet our challenges if we all work together.
\ir. Chairman, my colleague Secretary Reich would like to add a word on labor

markets.
Thank you.

-30-

VBLIe DEBT NEWS
Department of the Treasury •

Bureau of the Publi~ Debt • Washington, DC 20239

FOR IMMEDIATE RELEASE
June 1, 1994

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,("\. ( \ . ,

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i·J<iCoNTA.~T:

RESULTS OF TREAStJlRly, ~ J~~Cq.tb~

Office of Financing
202-219-3350

1~ 13-DAY BILLS

Tenders for $14,007 miJ..1ion ot _l~.-.dc;y bills to be issued
June 3, 1994 and to mature June- 1'6~-19-g.4were
accepted today (CUSIP: 912794L28).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average

Discount
Rate
4.09%
4.11%
4.09%

Investment
Rate
4.16%
4.16%
4.16%

Price
99.852
99.852
99.852

$125,000,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 31%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS

LB-871

Received
$55,795,000

Accegted
$14,006,500

$55,795,000
0
$55,795,000

$14,006,500
0
$14,006,500

0
$55,795,000

0
$14,006,500

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N
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0

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June 6, 1994

FEDERAL FINANCING BANK
Charles D. Haworth, Secretary, Federal Financing Bank (FFB),
announced the following activity for the month of April 1994.
FFB holdings of obligations issued, sold or guaranteed by
other Federal agencies totaled $118.4 billion on April 30, 1994,
posting a decrease of $1,717.4 million from the level on
March 31, 1994. This net change was the result of a decrease in
holdings of agency debt of $1,395.6 million, a decrease in
holdings of agency assets of $373.5 million, and an increase in
holdings of agency-guaranteed loans of $51.7 million. FFB made
19 disbursements during the month of April, and repriced one REAguaranteed loan. FFB also received 24 prepayments in April.
Attached to this release are tables presenting FFB April
loan activity and FFB holdings as of April 30, 1994.

LB-872

Page 2
FEDERAL FINANCING BANK
APRIL 1994 ACTIVITY

BORROWER

AMOUNT
OF ADVANCE

DATE

FINAL
MATURITY

INTEREST RATE

AGENCY DEBT
RESOLUTION TRUST CORPORATION
Note 22 /Advance #1

4/1

7/1/94

3.688% S/A

$1,425,141.57
$279,086.00
$1,459,282.74
$1,070,218.62
$1,493,521. 77
$2,165,493.63
$4,809,952.00
$15,003,796.00
$11,694,533.31
$8,049,589.61
$2,277,897.77
$131,784.00
$4,428.95
$881,841.00
$3,134,359.38
$9,327,114.00
$1,625,388.40
$1,045,944.00

3/25/04
12/11/95
3/25/04
3/25/04
9/25/03
3/25/04
6/30/95
12/11/95
11/2/26
3/25/05
9/25/03
9/1/95
4/1/97
9/5/23
1/3/95
12/11/95
3/25/03
11/2/26

6.542%
5.520%
6.757%
6.759%
6.733%
6.757%
4.973%
5.409%
7.467%
7.000%
6.916%
5.367%
6.256%
7.458%
4.714%
5.545%
6.669%
7.287%

$2,295,064.89

12/31/15

7.170% Qtr.

$28,400,000,000.00

GOVERNMENT - GUARANTEED LOANS
GENERAL SERVICES ADMINISTRATION
GSA Refinancings
Foley services Contract
GSA Refinancings
GSA Refinancings
GSA Refinancings
GSA Refinancings
HCFA Headquarters
Foley S~are Courthouse
ICTC BUlldin9
GSA Refinanclngs
GSA Refinancings
Atlanta CDC Office Bldg.
Chamblee Office Building
Oakland Office Building
Memphis IRS Service Cent.
Foley square Office Bldg.
GSA Reflnancings
ICTC Building

4/1
4/5
4/7
4/7
4/7
4/7
4/13
4/15
4/18
4/20
4/20
4/21
4/21
4/21
4/22
4/25
4/26
4/28

S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A

RURAL ELECTRIFICATION ADMINISTRATION
@Glacier state Tele. #181

S/A is a semi-annual rate:

@ interest rate buydown

4/8

Qtr. is a Quarterly rate.

Page 3 of 3
FEDERAL FINANCING BANK
(in millions)
Program
Agency Debt:
Department of Transportation
Export-Import Bank
Resolution Trust corporation
Tennessee Valley Authority
U.S. Postal Service
sub-total·

April 30, 1994
$

664.7
4,847.1
27,402.3
6,075.0
9.731.5
48,720.6

March 31. 1994
$

664.7
4,847.1
28,797.9
6,075.0
9.731.5
50,116.2

Net Change

FY '94 Net Change

4/1/94-4/30/94

10/1I93-4/30/94

0.0
0.0
-1,395.6
0.0
0.0
-1,395.6

664.7
-947,5
-4,285,4
-250.0
0,0
-4,818.3

Agency Assets:
FmHA-ACIF
FmHA-RDIF
FmHA-RHIF
DHHS-Health Maintenance Org.
DHHS-Medical Facilities
Rural Electrification Admin.-CBO
Small Business Administration
sub-total·

8,393.0
3,675.0
25,771.0
30.9
46.2
4,598.9
1.4
42,516.3

8,658.0
3,675.0
25,876.0
30.9
49.6
4,598.9
lz5
42,889.8

-265.0
0.0
-105.0
0.0
-3.4
0.0
-373.5

-515.0
0.0
-265.0
0.0
-5.2
0.0
-1.5
-786.6

Government-Guaranteed Loans:
DOD-Foreign Military Sales
DEd.-Student Loan Marketing Assn.
DEPCO-Rhode Island
DHUD-Community Dev. Block Grant
DHUD-Public Housing Notes
General Services Administration +
DOl-Virgin Islands
DON-Ship Lease Financing
Rural Electrification Administration
SBA-Small Business Investment Cos.
SBA-State/Local Development Cos.
DOT-Section 511
DOT-WMATA
sUb-total*

3,937.6
0.0
0.0
115.B
1,746.5
1,855.8
22.2
1,479.6
17,359.5
70.2
546.1
15.9
__ 0.0
27,149.2

3,944.0
0.0
0.0
115.9
1,746.5
1,789.9
22.2
1,479.6
17,359.5
72.6
551.4
15.9
0.0
27,097.5

-6.3
0.0
0.0
-0.1
0.0
65.9
0.0
0.0
0.0
-2.4
-5.3
0.0
0.0
51.7

-145.7
-4,790.0
-30.4
-15.6
-54.5
270.1
-0.7
-48.7
-293.7
-20.2
-30.3
-1.1
-177.0
-5,337.8

grand-total*
*figures may not total due to rounding
+does not include capitalized interest

==========

=============

$118,386.1

========

$120,103.5

$-1,717.4

$-10,942.7

NEWS

TREASUR¥"
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYL

AVENUE, N'.W.• WASHINGTON, D.C .• 20220. (202) 622·2960

Statement by
LAWRENCE H. SUMMERS
UNDER SECRETARY FOR INTERNATIONAL AFFAIRS
DEPARTMENT OF THE TREASURY
for the USIA Conference
"Investing in People: US-South Africa Conference on
Democracy and the Market Economy"
June 4, 1994

There is no higher objective for the United States than global prosperity in a democratic
framework. Prosperity combined with democracy means peace and a better world for
all. And neither prosperity nor democracy can long endure without the other. Nowhere
is the struggle to meet these objectives more crucial or more vivid than today in South
Africa.
South Africa faces the challenges of managing three revolutions: in the economic,
political, and social realms. In the economic area the challenge is to revitalize the
economy. The political challenge is to solidify a new democracy that involves all races
and political groups. The social challenge is to guarantee the constitutional rights and
the provision of the basic human needs of all South Africa's citizens.
South Africa is fortunate to face these challenges with significant resources:
an economy of $112 billion and growing;
a sophisticated financial system, the eleventh largest in the world by capitalization;
a modern infrastructure; and
major deposits of gold, platinum, and other minerals.
Though the national income is large for a population of 42 million, the country is
characterized by enormous disparities in income, life expectancy, and other vital
indicators. There really are two South Africas -- a black one and a white one.
The average black South African's income in 1989 was $670, about the same as the
average Senegalese. The average white South African's income was nearly ten times as
high, at $6,530 -- higher than the average Greek or Korean.
LB-873

A large percentage of the black population also lacks virtually every basic amenity that
most of us in this room take for granted:
10 million are inadequately housed;
2 million are malnourished;
15 milliqn must do without sanitation;
23 million have no electricity.
These differences in income and access to proper health care, housing and other basic
needs translate into a huge differential between the life expectancies of blacks and
whites: 57 years for blacks, but 73 years for whites.
Literacy, to consider another measure, is only 45% among blacks, but 97% among
whites. There is a high correlation with unemployment, which is around 50% for blacks
and only about 10% for whites. In general, South Africa has a part of its work force that
is well-schooled, well-trained, and ready to cope with the age of technology. It has
another, much larger part, whose potential still is waiting to be developed.
We all could cite examples from around the world of success and failure in meeting
these kinds of economic challenges. Success comes from skillful management of
economic policy, supportive external assistance, and some luck. Putting aside the luck
variable, I want to speak about the requisites for success in the task of the reconstruction
and development of South Africa.
Economic Objectives
First, sound macroeconomic policy is crucial. President Mandela in his State of the
Nation address reiterated his administration'S commitments to:
"ensuring sustainable growth and development, leading to a better life for all"
"continue existing programs of fiscal rehabilitation"
"make every effort to contain real general government consumption at present
levels and to manage the budget deficit with a view to its continuous reduction."
Furthermore, President Mandela recognized that "To achieve these important objectives
will require consistent discipline on the part of both the central and the provincial
governments." The moderate but realistic funding level pledged for the first year of the
Reconstruction and Development Program (RDP) -- 2.5 billion rand, or about $700
million -- is a positive sign of the new administration's commitment to balancing
economic growth with immediate improvements in the living standard of the
disadvantaged majority.
There is a consensus that capital controls should be phased out, and the financial rand
sYstem abolished, as soon as the balance of payments and reserve account permit.
.I

These are the right commitments to the right policies. If the new government sticks to
these policies, the probability of an economic success story improves. The IMF, the
World Bank, and the donor community are ready to offer technical and financial support
where it is desired and needed.
Second, we are. encouraged by President Mandela's discussion of the need to attract
private investment. He has promised to continue fiscal and monetary policies aimed at
maintaining financial stability and further reducing inflation. He wants to see the private
sector playa central role in achieving high and sustainable economic growth.
To encourage private investment and a strong business sector, the government's role is
also to assure an open trade and investment environment. President Mandela has shown
an awareness of the need for concrete action in this area. We welcome South Africa's
intention to enter the GAIT, and its offer to reduce its tariffs and simplify its tariff
structure. We hope for action as well to eliminate barriers to investment and the
repatriation of profits.
President Clinton announced last month an "Aid, Trade and Investment Package for
South Africa." It includes programs targeted at social investment as well as increasing
trade and business investment between our two nations. Specifically, the Overseas
Private Investment Corporation's guarantee programs, USAlD's Micro Enterprise
Development Program, the Export-Import Bank's trade finance facilities, and the
Commerce Department's trade development programs are aimed at promoting a strong
private sector in South Africa. The President also will grant trade preferences to South
Africa under the Generalized System of Preferences, which should provide a substantial
boost to South Africa's export sector.
Finally, the Treasury Department is giving top priority to negotiation of a bilateral tax
treaty, which should encourage U.S. investment.
Social Objectives
Social objectives are central to the new government's vision. President Mandela has
made a R2.5 billion down payment on the people-centered society envisioned in the
Reconstruction and Development Program. There is no shortage of funding for this
purpose in the short run, but delivery structures for social services will need work. This
is an area where external assistance can help.
The World Bank is prepared to commit major resources, both financial and advisory, in
areas such as education, health care, sanitation, poverty alleviation, and small business
development. But I want to assure the new government that neither we, nor the other
members of the donor community, want to impose our development agenda on South
Africa. We do want to support South Africa's objectives. When those objectives have
been clearly defined, we will be ready to assist.

What Can South Africa wok Forward To?
If the new government can hold to the policy path it has set, take advantage of its own
resources, and reach out to others where additional resources are needed, I am hopeful
that within the next decade the South African people will see a real improvement in
their quality of life. I caution people to be realistic about the time it will take to erase
the effects of a~ economy built upon systematic discrimination.

Nevertheless, I am optimistic that South Africa can experience sustainable real growth of
around 5%, single digit inflation, and a significant reduction in unemployment, with
creation of up to 6 million new jobs.
With a commitment to the policies that President Mandela has announced, these things
are feasible over the medium term. I see South Africa closing the social gap, with:
clean water supplied to an additional 13 million people;
sanitation for an additional 5 million people;
construction of 300,000 new homes per year by the year 2004;
and 2500 improved health clinics.
Even if we could reduce the gap by only one-third, we would see a dramatic impact on
people's lives in the next decade. Black life expectancy would increase by about five
years. Some 14,000 black infants, who now perish every year, would live.
Conclusion
Success in South Africa's socia-economic transition is important for South Africans. It is
important for the troubled African continent. And it is important to the democratic
ideals that Americans cherish.
Indeed, Americans feel a bond with South Africans on many levels. I am reminded of
Robert Kennedy's words to the students of the University of Capetown:
I come here because of my deep interest and affection for a land settled by the
Dutch in the mid-seventeenth century, then taken over by the British, and at last
independent; a land in which the native inhabitants were at first subdued , but
relations with whom remain a problem to this day; a land which defined itself on
a hostile frontier; a land which has tamed rich natural resources through the
energetic application of modern technology; a land which once imported slaves
and now must struggle to wipe out the last traces of that former bondage. I refer,
of course, to the United States of America.

DEPARTMENT

THE

TREASURY

NEWS
Contact:

FOR IMMEDIATE RELEASE
June 6, 1994

Rebecca Lowenthal
(202) 622-2960

U.S. TREASURER NAMED HONORARY DIRECfOR FOR SAVINGS BONDS
U.S. Treasurer Mary Ellen Withrow has been named National Honorary Director
for U.S. Savings Bonds to help the Treasury Department promote the sale of savings
bonds nationwide.
Mrs. Withrow will represent Treasury Secretary Uoyd Bentsen around the country
at savings bond campaign kick-offs and ceremonies.
Americans own more than $176 billion worth of savings bonds, which individuals
can purchase through financial institutions or through the Payroll Savings Plans of
government and private employers.
The savings bond program was started during World War II, when billions of
dollars were needed to help finance the war effort. In a one-month drive launched just
after the D-Day landing in Normandy, for example, the U.S. raised $21 billion through
bond sales.
"Last year, we sold $17 billion in bonds. If you adjust for 50 years of inflation, we
would have needed to sell $190 billion to reach what they did after D-Day," Secretary
Bentsen said.
"What I like about savings bonds is that they are the safest investment around," he
said. ''The government has never defaulted on a security. They're affordable, you can
buy them in small lots, you don't have to pay commission fees or sales loads, and they
have tax advantages. I don't think we save enough in this country. We all know we
need to save more. And savings bonds are a good way to do it."
Mrs. Withrow was sworn in on March 1, 1994 as U.S. Treasurer. She will work
closely with Richard Gregg, Commissioner of the Public Debt, who has overall
responsibility for the savings bond program.

-30LB-874

DBLIe DEBT NEWS
Department oj'the Treasury •

Hun'au olthe Public Debt • Washington, DC 20239

I IPF,';",'

FOR IMMEDIATE RELEASE' ·
June 6, 1994

"Ir'''',
t

"!i,

,,~.
,:

,),(:

CONTACT: Office of Financing
202-219-3350

RESULT~(;'OF I 'FR~!A~llk1'J; &UCTION

OF 13 - WEEK BILLS

Tenders for $12,6el million of 13-week bills to be issued
June 9, 1994 and 'td'matti-reSepternber 8, 1994 were
accepted today (CUSIP: 912794N26).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average

Discount
Rate
4.14%
4.15%
4.15%

Investment
Rate
4.24%
4.25%
4.25%

Price
98.954
98.951
98.951

Tenders at the high discount rate were allotted 54%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS

Received
$49,769,321

Accepted
$12,681,173

$44,693,607
1,361,534
$46,055,141

$7,605,459
1,361,534
$8,966,993

3,204,555

509,625
$49,769,321

509,625
$12,681,173

Type

Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS

An additional $305,575 thousand of bills will be
issued to foreign official institutions for new cash.

LB-875

UBLIC DEBT NEWS
Department of the Treasury •

Bureau of the Public Debt • Washington, DC 20239
; 0;.; ,

FOR IMMEDIATE RELEASE"
June 6, 1994
RESULTS

f
'!~()~f ~',:JCCONTACT: Office of Financing
202-219-3350

,~.

·J'\!_I

OF,JurREi~t.uR>/J si

Att:JION OF 26 - WEEK BILLS

Tenders for $12,64S million
of 26-week bills to be issued
r .....
June 9, 1994 and to matlIre 'Decembe,t, 8, 1994 were
accepted today (CUSIP: 912794P40).
..J

~~,

' .

RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average

Discount
Rate
4.52%
4.53%
4.53%

Investment
Rate
4.69~
4.70~
4.70~

Price
97.715
97.710
97.710

Tenders at the high discount rate were allotted 86%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS

Received
$50,623,410

Accepted
$12,649,419

$45,487,902
1,161.733
$46,649,635

$7,513,911
1,161. 733
$8,675,644

3,150,000

823,775
$50,623,410

823,775
$12,649,419

An additional $493,925 thousand of bills will be
issued to foreign official institutions for new cash.

LB-876

PUBLIC ,;DE,llT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
'''1)

ll,1'l

I"
' . ',
, .)

,,1

1..,,/

FOR RELEASE AT 3:0n-PM : ' , '
June 6, 1994

:..

,',

I'0 l1.,

'j
T

Contact: Peter Hollenbach
(202) 219-3302

....

PUBLIC DEBT ANNOUNCES ACTIVITY FOR
SECURITIES IN THE STRIPS PROGRAM FOR MAY 1994

Treasury's Bureau of the Public Debt announced activity figures for the month of May 1994,
of securities within the Separate Trading of Registered Interest and Principal of Securities
program (STRIPS).
Dollar Amounts in Thousands
Principal Outstanding
(Eligible Securities)

$778,598,886

Held in Unstripped Form

$559,032,052

Held in Stripped Form

$219,566,834

Reconstituted in May

$13,298,852

The accompanying table gives a breakdown of STRIPS activity by individual loan description.
The balances in this table are subject to audit and su~sequent 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."
Information about "Holdings of Treasury Securities in Stripped Form" is now available on the
Department of Commerce's Economic Bulletin Board (EBB). The EBB, which can be
accessed using personal computers, is an inexpensive service provided by the Department of
Commerce. For more information concerning this service call 202-482-1986.

000

PA-148

TABLE VI--HOLDINGS OF TREASURY SECURITIES IN STRIPPED FORM. HAY 31. 1994
(In thousands)

----------------------------------------

----------------------------------------------------------------------.. _---.1

Principal Amount Outstanding

1----------------------------------------------------/ 1 Reconstituted
I
Total
! Portton Held In I Portion Held In II This Monthl1
I
1
I Unstrlpped Fonn 1 Stripped FOMII II
------------------------- --------------- -----1----------------1-----------------1-------_·_-----_· 1-----------......
$33.600
11-5/81 Nate C-1994.....
. .... 11/15/94 ..... I
$6.658.554
$4.725.754 I
$1.932.800 I
Maturity Date

LOAn Description

11-1/41 Note A-1995.....
11-1/41 Note 8-1995.....
10-1/21 Note C-1995.....
9-1/Z: Note 0-1995......
8-7IS: Note A-1996......
7-3/81 Nott C-1996......
7-1/41 Nott D-1996......
8-1/Z: Note A-1997......
8-5/St Note B-1997......
8-7/8% Note C-1997......
8-1/81 Note A-1998 ......
9% Note 8-1998 .........•
9-1/41 Note C-1998 ......
8-7/St Note 0-1998 ......
8-7/8% Note A-1999 ......
9-1/81 Note 8-1999 ......
St Note C-1999 ..........
7-7/St Note 0-1999 ..•...
8-1/2% Note A-ZOOO ......
8-7/8% Note B-lOOO ......
8-3/4% Hote C-2000 ......
B-lIn Note D-ZOOO ......
7-3/41 Nott A-200l. .....
61 Note B-ZOOl ..........
7-7/81 Nate C-ZOOl ......
7-1/n Note O·ZOOl ......
7-1/21 Note A-1002 ......
6-3/8% Note 8-2002 ......
6-1/4% Note A-Z003 ......
5-3/41 Note B-2003 ......
5-7/81 Note A-Z004 ......
7-1/4% Note B-2004 ......
II-51St Bond 2004 .......
12% Bond 2005 ...........
10-3/41 80nd 200S .•.•..•
9-3/8% Bond Z006 ........
11-3/4% Bond 2009-14 ....
11-1/4% Bond 2015 .......
10-5/61 Bond 2015 .......
9-7/8X Bond 2015 ........
9-1/AX Bond lOl5.. ......
7-1m: Bond 2016 ........
'-lIn Bond 2016 ........

I
I

I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I

. •.. . 2115/95 .•..•. 1
.. ... 5/15/95......
.. ... 8/15/95......
. .... 11/15/95.....
• . ... 2115/96......
. • ... 5/15/96......
.. .. . 11/15/96.....
. .... 5/15/97......
• .... 8/15/97......
.. ... 11/15/97.....
..... 2/15/98......
••••• 5/15/98......
.... .8/15/98. .....
..... 11/15/98.....
.... .2115/99......
.... .5/15/99. .....
..... 8/15/99......
..... 11/15/99.....
..... 2/15/00......
... .. 5/15/00......
..... B/15/00......
.. ... 11/15/00.....
.. ... 2115/01......
..... 5/15/01......
..... 6/15/01......
..... 11/15/01.....
..... 5/15/02......
... .. 8/15/02......
.. ... 2/15/03. .....
..... 8/15/03......
..... 2/15/04 •..... I
..... 5/1S/04 ...... I
..... 11/15/04 ..... I
..... 5/15/05 ...... I
..... B/15/05 •..•.. I
... :.2/15106 ...... I
..... 11/15/14 ..... I
..... 2/15/15 ...... I
... .. 8/15/15 ...... I
..... 11/15/15 ..... I
... .. Zl15/16 ...... I
.... .5/15/16 ...... I
.... .11/15/16 ..... I

6.933.861
7.1~1.086
7.955.901
7.318.550
8.«5.745
20.085.643
20.Z58.810
9.921.237
9.362.836
9.808.329
9.159.068
9.165.387
11.342.646
9.902.875
9.719.623
10.047.103
10.163.644
10.773.960
10.673.033
10.496.Z30
11.080,646
11.519.6Bl
11.312.802
12.398.083
12.339.185
24.2Z6.102
11.714.397
23.BS9.01S
23.S6Z.691
28.011.028
12.955.077
14.«0.372
8,301,B06
4.260.756
9.269.713
4.755.916
6.005.584
12.667.799
7.149.916
6.B99.B59
7.266.854
18.823.551
16.864.448

I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I

5.6«.581 I
4.549.646 1
5.255.501 I
4.049.350 /
7.082.545 I
19.200.843 I
18.007.610 I
8.770,037 I
7.961.236 I
7.782.729 I
8.240.988 I
6.821.187 I
9.359.446 I
7.088.475 I
8.41,.423 I
6.715.903 I
8.170.769 I
8.330.760 I
9.457.433 I
6.209.830 I
8.178.0B6 I
9.102.BB2 I
9.418.402
10.042.433
10.441.585
2Z.871.062
10.921.597
23.446.215
23.534.339
28.003.Bl6
12.955.077
14.440.372
5.820.206
3.061,258
8.510.513
4.755.276
2.643.184
4.B46.679
2.32B.476
2.403.859
6.318.054
18,401.951 I
17,953.646 I

1.289.280
2.571.440
2.700.400
3.269.200
1.363.200
8M.800
2.251.200
1.151.200
1.401.600
2.025.600
918.080
2.344.200
1.983.200
2.814.400
1.307.200
3.331.200
1.992.875
2.443.200
1.215.600
4.286.400
2.902.560
2,416.BOO
l.B94.400
2.355.650
1.897.600
1.355.040
792.800
412.800
28.352
7.200
-0-02.481.600
1.199.500
759,200
640
3,36Z.400
7,B21.120
4.821.440
4.496.000
94B,800
421.600
910.800

I
I

-0111.840

16.000
80.000
12.100

I
I
I

-024.100
8.000

-0-

107.200
58.880
124.&00

1
1

I
I
I
I
I
II
II
II
II
1\
/I
II
II
II
/I
/I
II
1\
II
/I
"

II
II
1/
II
II
1/
"

1/
II
1/

88.800
43.200
19.200
2S.800
24.900

30.400
12.400
19.200

11.200
20.000
41.600
40,000
43.200
-0140.400
91.200
512
136.000
-0-0291.200
196.000
175.200
-0569.600
476.480
247.680
454.400
555.200
.050 . .00

TABLE VI--HOLDINGS OF TREASURY SECURITIES IN STRIPPED FORM. HAY 31, 1994
(In thousands)

---------------------------------------------------------------------------------------------------------------------.
I

Loan Description

1
1

Pri nci pal Amount Outstandi ng

----------------------------------------------------1 I

Maturity Date

Total

Portion Held in
1 Unstri pped Form
I

Portion Held in
Stri pped Form

Reconst ituted
This Monthll

-------------------------1-------------------- ----------------1-----------------1-----------------1 1-----------------

8-3/4% Bond 2017 ........
8-7/8% Bond 2017 ........
9-1/8% Bond 2018 ...
9% Bond 2018 ............
8-7/8"1. Bond 2019 ........
8-1/8% Bond 2019 ........
8-1/2% Bond 2020 ........
8-3/4% Bond 2020 ........
8-3/4"1. Bond 2020 ........
7-7/81. Bond 2021. .......
8-1/8% Bond 2021. .......
8-1/8% Bond 2021 ........
8% Bond 2021. ...........
7-1/4"1. Bond 2022 ........
7-5/8% Bond 2022 ........
7-1/8"1. Bond 2023 ........
6-1/4% Bond 2023 ........
c. . . . .

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

I ...... 5/15/17......
I ...... 8/15/17......
I ..... 5/15/18......

I .~ .... 11/15/18. ..•.
I ..... 2/15/19......

I ..... 8/15/19......
I

. . . . . 2/15/20......

I ..... 5/15/20......

I .. · .. 8/15/20......
I ..... 2/15/21......

I ..... 5/15/21......
I

. . . . . 8/15/21......

I ..... 11/15/21.....
I ~ .... 8/15/22......
I ..... 11/15/22.....

I ..... 2/15/23......
I .... .8/15/23 ...... I

I
I

18.194,169
14.016.858
8.708.639
9.032.870
19,250.798
20.213.832
10.228.868
10.158.883
21.418.606
11.113.373
11,958.888
12,163,482
32,798,394
10,352,790
10,699,626
18,374,361
22,909,044

I
I
I

I
I

I
I
I

I
I

5,077,049
5.912.858
1.958,239
1,255.470
3.596,398
17,328.072
3.860,068
2.386.563
3.745.166
9.449.373
4,597,928
5,634.202
7,751,169
8.643,190
5,317.226
17,428.761
22.854,292

I
I
I

I
I

I
I
I

I
I

13,117,120 II
8.104.000 II
6.750.400 II
7.777.400 II
15.654.400 II
2.885.760 "
6.368,800 II
7.772.320 II
17.673.440 "
1.664,000 "

7,360.960 "
6.529,280
25,047.225
1.709,600
5,382,400
945,600
54,752

"
"
"
"
"

1.108,960
969.600
603.200
241.000
416.000
958.720
·328.000
440.320
540.000
377 ,600
648,000

455.360
1,002.400
316,000
502.400
6.400
-0-

1----------------1-----------------1-----------------1 1----------------..................

778,598,B86

559,032,052

219,566,B34

13,298,852

I1Effective May I, 1987, securities held in stripped form were eligible for reconstitution to their unstripped form.
Note: On the 4th workday of each month Table VI will be available after 3:00 pm eastern time on the Commerce Oepartment's
Economic Bulletin Board (EBB). The telephone number for more information about EBB is (202) 482-1986. The balances
in this table are subject to audit and subsequent adjustments.

DEPARTMENT

THE

TREASURY

•

TREASURY f·~····;!!,~ eN E W S

'r'~
. . . . . . . . . . . . . . . . . .~178~9~. . . . . . . . . . . . . . . . . ..
y

OFFICE OF PUBUC AFFAIRS -1500 PENNSvtVA'NIAAVEN.QE,N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960

FOR IMMEDIATE RELEASE
June 7, 1994

Contact:

Chris Peacock
(202) 622-2960

LOGUE-KINDER NAMED ASSISTANT SECRETARY FOR PUBLIC AFFAIRS
SCHLOSS BECOMES DEPUTY ASSISTANT SECRETARY
Treasury Secretary Lloyd Bentsen swore in Joan Logue-Kinder as Assistant
Secretary for Public Affairs at the Department of the Treasury on May 25, 1994.
President Clinton formally nominated Ms. Logue-Kinder to be Assistant Secretary
in January 1994. She had been Deputy Assistant Secretary for Public Affairs since
March 1993. In this position, Ms. Logue-Kinder directs all external communications
initiatives for the Secretary and his staff with the media, the White House Press Office
and other government agencies.
Ms. Logue-Kinder carne to Treasury from Edelman Public Relations Worldwide
where she was vice president for the New York office's public affairs group and director
of the company's minority affairs program. Prior to working at Edelman, Ms. LogueKinder was managing director of The Mingo Group/Plus, a division of The Mingo
Group, one of the largest African-American advertising agencies. She began her public
relations career as director of communications for National Black Network (NBN),
where she was a founder and co-director of The World Institute of Black
Communications, and later a corporate vice president for NBN.
Ms. Logue-Kinder attended Wheaton College and received a B.A from Adelphi
University. She lives in Washington, D.C. and has three children.
Howard M. Schloss replaces Ms. Logue-Kinder as Deputy Assistant Secretary for
Public Affairs. He has been at Treasury since December 1993. He had been an account
supervisor at Powell Tate, a Washington, D.C., public affairs firm, since January 1991.
Before going to Powell Tate, Mr. Schloss was communications director for the
Democratic Congressional Campaign Committee. Prior to that he worked for the Fort
Worth Star-Telegram.
Mr. Schloss graduated in 1982 from Southern Methodist University with a B.F.A
in journalism. He is married and lives in Virginia.

-30LB-877

omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W:. WASHINGTON, D.C.. 20220. (202) 622-2960

FOR RELEASE AT 2:30 P.M.
June 7, 1994

CONTACT:

Office of Financing
202/219-3350

TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $24,000 million, to be issued June 16,
1994. This offering will result in a paydown for the Treasury of
about $15,900 million, as maturing bills total $39,888 million
(including the 13-day cash management bills issued June 3, 1994,
in the amount of $14,007 million).
Federal Reserve Banks hold $6,285 million of the maturing
bills for their own accounts, which may be refunded within the
offering amount at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $2,033 million as agents for
foreign and international monetary authorities, which may be
refunded within the offering amount at the weighted average
discount rate of accepted competitive tenders. Additional
amounts may be issued for such accounts if the aggregate amount
of new bids exceeds the aggregate amount of maturing bills.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C. This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of the new securities are given in the
attached offering highlights.
000

Attachment

HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED JUNE 16, 1994

June 7,

1994

Offering Amount

$12,000 million

Description of Offering:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Currently outstanding
Minimum bid amount
Multiples

91-day bill
912794 N3 4
June 13, 1994
June 16, 1994
September 15, 1994
March 17, 1994
$13,112 million
$10,000
$ 1,000

182-day bill
912794 M2 7
June 13, 1994
June 16, 1994
December 15, 1994
December 16, 1993
$16,238 million
$10,000
$ 1,000

The following rules apply to all securities mentioned above:

Submission of Bids:
Noncompetitive bids
Competitive bids

Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.

Maximum Recognized Bid
at a Single Yield

35% of public offering

Maximum Award .

35% of public offering

Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms

Prior to 12:00 noon Eastern Daylight Saving time
on auction day
Prior to 1:00 p.m. Eastern Daylight Saving time
on auction day
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date

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

FOR IMMEDIATE RELEASE
June 8, 1994

Contact: Peter Hollenbach
(202) 219-3302

MAY SAVINGS BONDS SALES REACH $725 MILLION

Savings Bonds sales in May reached $725 million, pushing the value of U.S. Savings Bonds
held by Americans to $176.6 billion, up 7 percent over a year ago.
Savings Bonds issued on or after March 1, 1993, and held five years or longer, earn the
market-based interest rate if it averages more than the guaranteed minimum of 4 percent.
Bonds issued before March 1993 retain their existing guaranteed minimum rates until they
enter a new extended maturity period. If redeemed during the first five years, bonds earn
4 percent. The current semiannual market-based rate effective May 1, 1994, through
October 31, 1994, is 4.70 percent.
Interest earnings on Savings Bonds are exempt from State and local income taxes, and
Federal income taxes on the interest earnings can be deferred.
Current rate information can be obtained by calling the Savings Bonds Marketing Office's
toll-free number, 1-800-4US-BOND.

-more-

PA-149
LB-879

STATISTICAL SUMMARY
Series EE and HH U. S. Savings Bonds
Month of May 1994

May
1994

ISSUES, REDEMPTIONS AND
OUTSTANDING

May
1993

(In millions of dollars)
Sales:

Series EE

$ 725

$ 787

Accrued Discount (Interest
earned and added to Amount
Outstanding) Series E & EE

719

723

Redemptions (Including
Accrued Discount)
All Series

759

627

Cash Adjustments from Series
HH Savings Bonds Exchanges

(I)

Amount Outstanding
Net Change (+l/{-)*

684

Total Outstanding

1994

Series E & EE
Series H & HH

(3)
880
1993

$165,254
11,313

$154,693
10,980

$176,567

$165,673

000

DEPARTMENT

THE

'.:-

TREASURY

TREASURY ~~J,N,E W S
.

J78q~~."""""""""""""""",

OFFICE OF PUBliC AFFAIRS -1500 PENNSYLVANIAAVENU~, N.W. - WASHINGTON, D.C .• 20220. (202) 622-2960
1/

i i i

...;\. ,'lj

..J i

~............

\ ' ,~

TEXT AS PREPARED FOR DEUVERY
,

REMARKS BY DEPUTY TREASURY SECRETARY ROGER ALTMAN
TO THE AMERICAN COUNCIL FOR CAPITAL FORMATION
LOEWS L'ENFANT PlAZA HOTEL
JUNE 8,1994
I want to begin by commending this group for its commitment to increasing savings
and investment in the United States. Many in Washington somehow consider this a
conservative or pro-business cause. There would be nothing wrong with that if it were true,
but it simply isn't. That type of labeling betrays a misunderstanding of the simple, but
powerful, linkage between savings, investment, productivity, and real incomes. We all know
what real income means. It means standards of living. And, the central purpose of any
society is to improve the standards of living of its citizens.
Many, including this organization, have called for the creation of a consumption tax
to replace or reduce our dependence on the current income tax system. Though they often
cite the simplicity or self-policing aspects of a properly designed consumption t~ the real
goal is to boost private savings and investment. That is the reason this effort will continue
to build momentum. For revitalizing the capital formation process is absolutely crucial for
the long term economic health of this nation.
America's saving rate has been declining for a number of years. During the 1970's,
personal savings averaged 7.7 percent of disposable income. By the 1980's that rate had
dropped to 6.5 percent, and thus far in the 1990's its registered an anemic 4.6 percent.
While savings is no longer as closely correlated with investment levels in a global capital
market era, clearly the decreasing level of domestic savings is cause for concern.
It is important to ask "why savings have declined?" Unfortunately, the evidence is
mixed and there is no consensus. There are several theories. Some think that the public
safety nets we created over the past 50 years are perceived as having reduced the need to
save. Another theory suggests that rising h01;lsing values and stock market gains during the
1970's and 1980's created a new sense of security among those Americans that would
otherwise be in the prime saving years of their life. And finally, a third theory postulates
that spending has simply become too easy. As financial innovations have increased access
LB-880

-2-

to personal assets, the will to spend has overcome the will to save. In truth, I think nobody
really knows. It could be that all of these factors play some role -- or perhaps none.
Should our U.S. savings rates be a cause for concern? Yes, because low levels of
domestic savings force us to be a chronic net capital importer. That raises questions ranging
from developmental equity to possible strategic liabilities. As the world's most developed
nation, it can be argued the U.S. should be a net capital provider. Rather than consuming
almost $140 billion per year from world reserves, we should be contributing to them. In a
most basic sense, we should ask ourselves why the U.S. with a per capita income of more
than $20,000 should borrow from the Chinese whose per capita income is less than $2,000
to fund its business investments at home.
But there are some strategic concerns as well. Do we really want to depend on
foreign markets for the bulk of our investment capital? There are some reasons why we
might not. International investors forced to accept both interest rate and foreign exchange
risk may charge more for the use of their funds. They also may withdraw or deny
additional funds more quickly during periods of market upheaval.
Declining savings rates may also have contributed to the decline in private sector
investment. Throughout the 1950's, 1960's and 1970's (nominal) net private business
investment levels averaged more than 8 percent of NDP (net domestic product) for each
decade. During the 1980's, however, the average rate was halved to 4 percent. And thus
far in the 1990's, it has been halved again to only 2 percent. While the level has picked up
smartly during the past 12 months, clearly more needs to be done.
The international comparisons are not favorable. Even if we include historical data
reaching back 30 years, we lag all other G-7 member countries. From 1960 to 1990, total
U.S. net investment amounted to 7 percent of NDP. The closest comparable countries are
the U.K at 9 percent and Canada at 12 percent. And all three of these are a far cry from
Japan whose 30 year average measures 21 percent.
It is little wonder then that Japan's long-term growth rate over this same time period
was almost double ours. There is simply no escaping the linkage between investment, and
faster economic growth. Raising and maintaining high levels of investment is the central
go~ of group~ ~e Y?UfS, and it is also a key tenet of the Clinton economic plan. And, the
Clmton AdIDlIDstratIOn has taken several steps to improve U.S. investment.
The most direct and essential first step was to cut the budget deficit and thereby
reduce the level of nat~onal dissaving. Over the course of the past decade, mounting deficits
?ad ~oubled our na.tIOn~ debt ratio (34 percent to 70 percent of GDP) and created
lnf!atIOnary expectatIOns m the private sector. With last year's budget plan, President
Clmt?n ~t the deficit by $5~ .billion over five years (1994 - 1998). As a result, next year's
defiCIt will total only $176 billIon or 2.5 percent of GDP -- slightly more than half the 4.4
percent CBO had projected.

-3Reducing the budget deficit by 2 percent of GDP next year will bolster national
savings. And, assuming that two-thirds of those savings remain in this country, it will raise
investment levels by 1.3 percent. This, in turn, will contribute an additional 0.2 percent to
our growth in GDP based on historical economic trends.
This has had a positive impact on business investment. It brought about a sharp fall
in interest rates. The benchmark 30 year bond fell below 6 percent (a 20 year low) and that
provided a substantial stimulus to the economy. And sure enough, businesses began
investing once again. In fact, in 1993, business investment in machinery and equipment
jumped more than.l8 percent over the previous year's level. While interest rates have risen
recently, they have not reached levels that would dampen the recovery since the economic
fundamentals remain strong. Government borrowing is no longer driving up interest rates,
inflationary expectations are moderate, and we continue to see steady growth in
employment.
A second step is to restore selective public investments. During the 1960's, our
public investment averaged 4.5 percent of our GDP, but we're now operating at 2.6 percent.
This is undermining our competitiveness. There are, after all, some select areas where only
the public sector can lead.
Restoring investments in people is a core principal of the President's economic
strategy. For while production and capital are mobile, our workforce is here for the
duration. Yes, it is still the most productive in the world, however, several negative trends
including high drop-out rates, worker illiteracy, and an aging population are threatening to
erode that status. Therefore, it is imperative to upgrade the skills of our workers through
improved education, training, and retraining.
With this goal in mind, the President expanded Head Start and put forward his Goals
2000 plan to improve our education system. As a nation, we spend more money per student
on education than any other G-7 country ($3,800 constant 1989 dollars), and yet our testing
scores lag most of them. These two initiatives will help prepare our disadvantaged youths
for school and set higher performance standards overall.
The President also vastly expanded the earned income tax credit. This program
provides a refundable tax credit to lower income workers and their families that choose to
work rather than receive welfare. Similarly, he proposed a re-employment initiative to
replace our outdated unemployment system. The goal of this program is to retrain and
reemploy people as soon as possible. The combined goal o~ these programs is to r~duce the
number of people receiving entitlements and to keep them m the workforce. Staymg on the
job, after all, is the best known way to learn new skills and remain a productive part of our
society.
The President also sought to increase the percentage of college graduates in the
workforce by creating a National Service Program and reforming the student loan system.

-4-

Workers with college degrees generally earn an average of 1.7 times more than those
holding high school diplomas.
These various steps will not fix our overall problem of declining levels of capital
formation, but they will help. In the long term, some form of consumption tax will receive
increasing attention from policy makers on all sides. But any such proposal would have to
meet several stringent criteria. It would have to ensure adequate progressivity. It would
truly have to promise improved savings. It would have to be easily administrable. It could
not be economically destabilizing as it is phased in. And, it would have to have sufficient
broad-based appeal. These are the tests which should be applied to any such proposals,
including the Nunn-Domenici "savings-exempt income tax," the Boren-Danforth broad-based
consumption tax, and Congressman Gibbons' support for a value-added tax.

In closing, I would stress that this is an important debate and those of us in the
Treasury look forward to participating in it. Thank you.
-30-

UBLIC DEBT NEWS
Department of the Treasury •

Bureau of the Public Debt • Washington, DC 20239

FOR IMMEDIATE RELEASE
June 13, 1994

'::~i:,',,!{

','

~CON1;'.f¥rT: Office of Financing

202-219-3350
TREASURY~S

RESULTS OF

AUCTION OE 13-WEEK BILLS
,~\ "" '~I J I 0
Tenders for $12,067 million of 13-week bills to be issued
June 16, 1994 and to mature Sept~~er 1~, 1994 were
accepted today (CUSIP: 912994N34):.'
..;~"; ~,

U .;

RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average

Discount
Rate
4.15%
4.16%
4.16%

Investment
Rate
4.25%
4.26%
4.26%

Price
98.951
98.948
98.948

Tenders at the high discount rate were allotted 46%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS

Received
$57,317,514

Accepted
$12,066,552

$52,303,020
1,262,505
$53,565,525

$7,052,058
1,262,505
$8,314,563

3,134,780

617,209
$57,317,514

617,209
$12,066,552

Type

Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS

An additional $102,991 thousand of bills will be
issued to foreign official institutions for new cash.

LB-881

UBLIC DEBT NEWS
Departmcnt of the Treasury •

Bureau of the Public Debt • Washington, DC 20239

FOR IMMEDIATE RELEASE
June 13, 1994

CONTACT: Office 9f Financing
JU ..:1.;.: \ j j '"\ j ~0)2-219-3350

RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $12,066 million of 26-~eek b{lls ~o be issued
June 16, 1994 and to mature December 15 1 1994 were
accepted today (CUSIP: 912794M27).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average

Discount
Rate
4.54%
4.55%
4.55%

Investment
Rate
4.71%
4.72%
4.72%

Price
97.705
97.700
97.700

Tenders at the high discount rate were allotted 42%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS

Received
$50,844,342

Accepted
$12,065,715

$45,588,729
1, 100,297
$46,689,026

$6,810,102
1,100,297
$7,910,399

3,150,000

1,005,316
$50,844,342

1. 005,316

Type

Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS

$12,065,715

An additional $167,784 thousand of bills will be

issued to foreign official institutions for new cash.

LB-882

DEPARTI\IENT

THE

TREASURY

TREASURY
omCEOF PUBUCAFFAIRS eI500PENNSYLVANIAAVENUE, N.W. eWASIDNGTON, D.C. "20220 e (202) 622·2960

FOR IMMEDIATE RELEASE
June 13, 1994
BENTSEN TO RECEIVE EISENHOWER LEADERSHIP PRIZE
Treasury Secretary Lloyd Bentsen will receive the DWight D. Eisenhower Leadership
Prize honoring his lifelong commitment to public service and national leadership at a dinner at

7:30 p.m. Wednesday, June 15 in the International Ballroom of the Washington Hilton.
"I am honored to have been selected to receive the Eisenhower Leadership Prize,"
Secretary Bentsen said. "My career in public service began under General Eisenhower and I
have been very fortunate to have a public career that has been both long and filled with
challenges. I hope that in some small way I have furthered the interests of our nation."
The Eisenhower Leadership Prize is jointly awarded by the Eisenhower World Affairs
Institute and Gettysburg College. The Prize was established in 1990 on the looth anniversary

of the birth of President Eisenhower.
Previous recipients of the prize include General Colin Powell, former chairman of the
u.S. Joint Chiefs of Staff and Brent Scrowcroft, fonner national security adviser to President
Bush.
-30-

Press Contacts:
Treasury Department
Gettysburg College
Eisenhower World Affairs Institute

LB-883

Michelle Smith
John McAndrew
David Dunham

(202) 622-2960
(717) 337-6804
(202) 223-6710

OFFICE OF PUBliC AFFAIRS .1500 PENNSYLVANIAAVENUE,lN.W.• WASHINGTON, D.C.. 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
JUNE 14, 1994

The Administration's Views on the Loan Securitization
Provisions of the Community Development,
Credit Enhancement, and
Regulatory hnprovement Act of 1994

Statement of the Honorable Richard S. Carnell
Assistant Secretary for Financial Institutions
United States Department of the Treasury
before the
Subcommittee on Telecommunications and Finance
Committee on Energy and Commerce
U oited States House of Representatives
June 14, 1994

LB-884

The Administration's Views on the Loan Securitization
Provisions of the Community Development, Credit
Enhancement, and Regulatory Improvement Act of 1994
Statement of the Honorable Richard S. Carnell
Assistant Secretary for Financial Institutions
United States Department of the Treasury
Summary
•

Borrowers, loan originators, and investors all stand to benefit from
securitization. Securitization can increase the market value of loans by
diversifying their risk, increasing their liquidity, and better satisfying
investors' risk-and-return preferences. These changes can make credit
cheaper and more readily available.

•

These benefits can extend to small business lending, even though small
business loans are more heterogeneous than home mortgages or
automobile loans. Securitization has the potential to increase the supply
and reduce the cost of credit to small businesses. It should enable loan
originators to free up resources that can be used to make more small
business loans. It should also bring new sources of funds to small- and
medium-sized business lending. Indeed, by enabling small businesses to
tap national and international credit markets, securitization could make
such businesses less susceptible to problems in the banking system.

•

Accordingly, the Administration supports the small business loan
securitization provisions in title II-A of H.R. 3474 as passed by the
Senate. These provisions would remove impediments to securitization.

•

The development of a larger market for commercial mortgage-backed
securities should also offer many benefits. It will impose additional
discipline in the allocation of credit for commercial real estate. A larger
secondary market for commercial mortgages will also promote a safer and
sounder banking system by enabling banks to diversify out geographic
risk. Thus the Administration supports section 347 of Senate-passed
H.R. 3474, which would extend the benefits of the Secondary Mortgage
Market Enhancement Act of 1984 to commercial mortgages.

STATEMENT OF THE
HONORABLE RICHARD S. CARNELL
Mr. Chairman and Members of the Subcommittee, I appreciate this opportunity
to present the Administration's views on the loan securitization provisions of the
Community Development, Credit Enhancement, and Regulatory Improvement Act of
1994, H.R. 3474, as passed by the Senate. Improving small businesses' access to
credit is an important goal of the Administration, and we look forward to working
with the Committee on Energy and Commerce, and other Members of Congress, to
complete work on this legislation.

Overview of the Securitization Process

Before discussing the bill's securitization provisions, I would like to give you
an overview of the securitization process and its effect on credit markets. By
"securitization," I mean the process of transforming financial assets, such as loans,
into securities that in turn convert into cash over time. One converts loans into
securities by assembling a pool of loans and selling them to a special-purpose entity,
often a trust. That entity then issues securities representing a debt or equity interest in
the loan pool. The cash flow generated by the loans finances payments on the
securities.
Benefits of Securitization
Securitization occurs because it benefits loan originators, borrowers, and
investors. Securitization benefits loan originators by increasing the market value of
loans in at least three ways. First, a pool of loans is likely to have a more stable
income flow than a single loan. This greater stability raises the value of the loans in
the pool. Second, securitization enables the risks and returns of loans to be divided
into their component parts and tailored to a variety of investor preferences. Investors
can thus move closer to their preferred portfolios. For example, pension funds
investing now to pay benefits due three decades hence can bear interest-rate risk more
easily than firms needing ready cash in six months. Third, the option of securitization
makes loans more liquid -- easier to convert into cash -- even if the originator retains
them in its own portfolio.
Securitization benefits borrowers by making credit cheaper and more readily
available. Borrowers pay lower interest rates as originators pass on some of the
increased value of their loans. Securitization may also reduce fluctuations in the flow
of credit to borrowers who depend on a small group of primary lenders. Many small
businesses, for example, depend on commercial banks for lending. Cyclical changes
in the national or regional economy or in bank supervision that reduce the banking

2
system'S lending capacity may reduce the availability of credit to small businesses.
Securitization could help make small businesses less susceptible to problems in the
banking system insofar as it gives those businesses access to national and international
credit markets, through banks or other financial institutions.
Securitization benefits investors by providing additional investment
opportunities and enabling them to move closer to what they perceive as optimal
portfolios. Finally, securitization benefits the banking system as a whole through
diversification, whether geographic or with regard to a particular borrower or
industry.

Historical Development of Securitization
Asset-backed security issues began in the early 1970s with residential mortgages
and grew directly out of federally sponsored programs to assist the housing industry
and home buyers. A principal mandate of the Government National Mortgage
Association (Ginnie Mae), Federal National Mortgage Association (Fannie Mae), and
Federal Home Loan Mortgage Corporation (Freddie Mac) was and continues to be
providing greater access to capital for residential mortgage financing by developing a
secondary market for residential mortgages.
These government-sponsored enterprises (GSEs) dominated securitization issues
during the 1970s and into the 19805. In an effort to expand private-sector
participation, Congress passed the Secondary Mortgage Market Enhancement Act of
1984 (SMMEA). SMMEA attempted to increase the demand for, and market value
of, privately sponsored mortgage-backed securities by removing legal impediments to
securitizing "mortgage-related securities." Accordingly, SMMEA (1) changed margin
requirements to accommodate the need for delayed delivery in transactions involving
private issues of mortgage-related securities; (2) authorized depository institutions to
invest in mortgage-related securities issued by the private sector; (3) pre-empted state
law limiting investments in such securities; and (4) exempted mortgage-related
securities from registration under state securities laws. States could, however,
reimpose investment limitations and registration requirements within seven years after
SMMEA became law.
SMMEA sought to allow depository institutions and institutional investors,
especially pension funds, to purchase privately sponsored mortgage-backed securities
as if they were issued by a federal agency or GSE. SMMEA also attempted to reduce
the cost of issuing privately sponsored mortgage-backed securities by requiring states - subject to a state legislative override -- to regulate such securities no more
stringently than those of federal agencies. Its enactment unlocked a large pool of

3
potential demand for residential mortgage-related securities. These securities could be
marketed broadly without having to review fifty states' investment statutes. Although
it is not entirely clear to what extent SMMEA has contributed to the growth of
privately issued mortgage-backed securities, that growth has been rapid since 1984.
New types of asset-backed securities have proliferated, including securitized
automobile loans, credit card receivables, home equity loans, commercial mortgages,
and computer leases.
Securitization works most easily when it involves a high volume of standardized
loans, such as those for single-family housing, automobiles, and credit card purchases.
These loans are relatively homogenous, which makes it easier to project losses and
predict cash flows. Investors understand the historical losses for these loans, and the
payment streams are fairly consistent. Securitization is more difficult in the case of
nonstandard loans -- those with borrowers of differing credit qualities and relatively
wide variation in collateral, interest rates, amortization, covenants, and
documentation. However, the recent development of securities supported by pools of
such heterogenous assets suggests that many more types of financial obligations can be
securitized, provided that investors or credit-enhancers can project the losses and
predict the cash flows.

ll.

Securitizing Small Business Loans

Title II-A of H.R. 3474 seeks to reap for small businesses the same creditavailability benefits that securitization has yielded in other markets. In fact,
securitization of small business loans has already proven feasible: three public
securitizations have come to market even without changes in current statutes. But the
underlying diversity of small business loans impedes the development of a large-scale
secondary market. Small business loans have diverse credit terms, such as collateral
requirements and repayment schedules, which reflect the underlying diversity of the
business activities being financed. This diversity in terms makes it difficult to
estimate expected loan losses and predict cash flow. Nonetheless, this hurdle is not
insurmountable if secondary market participants can develop underwriting and loan
documentation procedures -- similar to those the GSEs have developed for home
mortgages. As the GSEs have demonstrated in the securitization of adjustable rate
mortgages and multifamily loans, such procedures need not require mindless
standardization of loan terms.
We believe that securitization has the potential to increase lending to small
businesses. Offering loan originators the opportunity to sell pools of small business
loans to investors should help free up resources that can be used to make more such

4
loans. By making small business loans more liquid, securitization should make them
more attractive to originate and to hold. Securitization should also bring new sources
of funds to small- and medium-sized business lending by enabling investors who do
not lend directly to small businesses -- such as pension funds, insurance companies,
trust departments, and other institutional investors -- to invest in small business loans
made by other financial institutions, including banks that are effective originators of
such loans but that may not want to hold all loans originated on their balance sheets.
Furthermore, the Administration believes that securitization should reduce the
cost of borrowing for small businesses. Small business borrowers pay higher interest
rates for credit in part because their loans are illiquid. If an active secondary market
for small business loans existed, interest rates in that market would influence rates in
the loan origination market. If rates and yields were high in the securitized loan
market, banks and other loan originators would be eager to have more loans to sell.
They would signal this interest to borrowers by slightly lowering their interest rates to
them, inviting borrowers to seek more credit or permitting previously marginal
borrowers to afford credit.
Title II-A seeks to foster the development of a secondary market for small
business loans by removing impediments in the securities, banking, pension, and tax
laws.
Just as SMMEA amended the securities laws to define "mortgage related
security," title II-A would define" small business related security." Such a security
would either: (1) represent an interest in one or more promissory notes of a small
business, or (2) be secured by an interest in one or more promissory notes and
provide for payments of principal in relation to payments on the notes. The loans
would have to be made to small businesses as defined by the Small Business Act, and
the security would have to be rated in one of the four highest rating categories (Le.,
rated investment grade) by at least one nationally recognized statistical rating
organization.
We do have some concerns about allowing a small business related security to
be rated in any of the four highest rating categories. SMMEA sets a higher standard
for mortgage-related securities, which are generally thought to be less risky than small
business related securities.
The bill also amends the federal securities laws relating to margin and securities
delivery requirements by allowing issuers more time to pool and sell securities. The
current 35-day time period for delivery is extended to 180 days so that small business
loans to be included in a pool backing securities may be originated after a commitment

5
to purchase the securities has been obtained. SMMEA accorded the same treatment to
mortgage-related securities. As under SMMEA, moreover, the Securities and
Exchange Commission (SEC) and the Federal Reserve Board (Fed) could reduce the
l80-day period to correct any perceived abuses. To date, neither agency has found it
necessary to reduce this time period for mortgage-related securities.
The bill would preempt certain state legal investment and blue sky laws with
respect to small business related securities. Investors could purchase small business
related securities to the same extent that state law (such as banking or insurance law)
permitted them to invest in U. S. government or agency securities. Small business
related securities would be exempt from state securities registration or qualification
requirements to the same extent as U.S. government or agency securities. A state
could, however, override any of these preemptions of its laws by enacting a statute to
that effect within seven years after this bill became law.
The bill would amend the banking laws to modify the regulatory capital and
accounting treatment of small business related securities held by qualified insured
depository institutions. 1
With respect to pension laws, the bill permits the Department of Labor, in
consultation with the Treasury Department, to exempt transactions involving small
business related securities from the restrictions of the Employee Retirement Income
Security Act of 1974 (ERISA) and the taxes imposed under section 4975 of the
Internal Revenue Code of 1986. This exemption will enable financial institutions that
manage pension funds to also package and sell small business related securities. The
Labor Department has a strong interest in small business securitization, particularly as
it relates to investments by pension plans. The Department wants to encourage
pension trustees to make that kind of investment so long as it accords with the
trustees' duties under ERISA, and it views this proposal as a tool for promoting job
creation and economic growth.
As for tax laws, the bill declares the sense of the Senate that taxation of a small
business loan investment conduit should be similar to the taxation of a real estate
mortgage investment conduit. It defines a hsmall business loan investment conduit" as
any entity whose assets substantially consist of small business loans originated by

An insured depository institution is a qualified institution if it is well capitalized
or, with the approval of the appropriate federal banking agency, adequately
capitalized.

6
insured depository institutions, credit unions, insurance companies, financing
companies, or leasing companies.
The Administration supports the overall objectives of these provisions.
Securitization will fulfill a useful role in the market by supplementing the making and
holding of loans, although the extent of this role cannot be predicted ahead of time.
The mechanism for structuring small business loan securitization, as envisioned in this
bill, is the proper approach to encouraging a secondary market. The bill places a
reliance on the private sector to develop a market, avoiding the potential expansion of
government liability for non-guaranteed small business loans that is inherent in some
other proposals.
It is also important to avoid reducing investor protection, and these provisions

leave all such protections in place. For example, the disclosure and liability
provisions of the federal securities laws will continue to apply. Moreover, the
participants in the securitization process will have their reputations on the line, thus
adding an economic incentive for protecting investors.
We believe that securitization of small business loans can be consistent with the
safe and sound operation of the financial system. However, as I noted earlier, it is
very important that the issue of asset sales with recourse be resolved in manner that
promotes a proper accounting of risk and provides the regulatory agencies with
flexibility in addressing capital and accounting matters.
The market for securitized small business loans is in the process of developing.
Sellers and buyers are becoming familiar with these securities and over time more
securitized loans will be available and more investors will be interested in purchasing
them. The Administration strongly supports removing obstacles to the development of
this market; government need not stand in the way of its evolution.
III.

Securitizing Commercial Mortgages

In addition to small business lending, credit availability concerns have also been
raised with regard to commercial mortgages. As with loans to small businesses,
facilitating the development of a secondary market for commercial mortgages has been
proposed as one solution. The secondary market for commercial mortgages is larger
than that for small business loans. However, only $5.2 billion in commercial
mortgage-backed securities were offered to investors between 1988 and 1992. This
amount is dwarfed by the $973.5 billion residential mortgages-backed securities
offered in the same period.

7
The secondary market for commercial mortgages is unlikely to ever grow as
large as the residential market. Commercial mortgages have the same sort of diversity
of terms that exist with small business loans. They differ according to type, tenant
mix, lease terms, and maturities. However, this lack of standardization is currently
being addressed as a consortium of financial institutions and real estate firms are
beginning to assemble data on loan performance and develop uniform underwriting
and documentation standards.
Nonetheless, the development of a larger market for commercial mortgagebacked securities will offer many benefits. It will, for example, impose additional
discipline in the allocation of credit for commercial real estate. During the late 1980s,
the economy and our financial institutions suffered as commercial real estate markets
tumbled. A secondary market will reduce the likelihood of overbuilding as pricing in
the secondary market will help signal when originators are extending too much credit.
Conversely, a secondary market will ease unnecessary credit constriction during an
economic downturn.
Further, a larger secondary market for commercial mortgages will promote a
safer and sounder banking system. Banks whose commercial mortgages are located in
one geographic area are more likely to face difficulty in a regional recession. A
larger secondary market will enable banks to diversify out this geographic risk.
Section 347 of H.R. 3474 is designed to stimulate the secondary market for
commercial mortgages by removing securities law barriers that inhibit the sale of
securities backed by commercial mortgages. Section 347 would add securities backed
by mortgages on commercial property to SMMEA' s definition of mortgage-related
security,1I and thereby extend the benefits of SMMEA to commercial mortgages. In
fact, the Senate version of SMMEA, passed in 1984, included commercial mortgagebacked securities. The House version, which ultimately prevailed, omitted
commercial mortgages. As discussed previously, SMMEA attempted to increase the
demand for, and the market value of, privately sponsored mortgage-backed securities
by broadening the investor base for mortgage-related securities.
11

National banks would be authorized to purchase the commercial mortgagebacked securities, subject to the regulations of the OCC. The oce would be required
to promulgate final regulations, within one year after the date of enactment, to
regulate this activity. The section would become effective on the date that the final
regulations are issued.
Finally, commercial mortgage-backed securities would not be deemed
mortgage-related securities under the Securities Exchange Act of 1934 if a state,

8
within seven years of the date of enactment, passes a law that specifically prohibits or
provides for more limited authority to purchase, hold or invest in such securities.
The Administration supports amending SMMEA to include commercial
mortgages as it would lead to a larger market for commercial mortgage-backed
securities.
IV.

Conclusion

Providing credit to small businesses is an important and continually challenging
task. Securitization is one of many potential methods of improving credit availability
to foster economic growth and one that should be facilitated by removing unnecessary
barriers.
Despite these important benefits, I would be remiss if I failed to note two
caveats. First, the securitization of heterogenous assets, like small business loans, will
lead to uniformity in underwriting standards. Although beneficial in the aggregate,
such uniformity may render borrowers with more unique characteristics unable to
obtain credit at a reasonable cost. Second, any facilitation effort must ensure that the
benefits of altering the rules for securitizing assets outweigh the costs.
The Administration supports the provisions discussed above and looks forward
to working with this Subcommittee on the community development financial
institutions legislation and on other efforts to promote growth.
I will be pleased to respond to any questions the Subcommittee may have.

DEPART.MENT

THE

TREASURY

NEWS
OFFICE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 _ (202)622-2960

For Release Upon Delivery
Expected at 10:30 AM
June 14, 1994

STATEMENT OF
DARCY BRADBURY
DEPUTY ASSISTANT SECRETARY OF THE TREASURY
FOR FEDERAL FINANCE
BEFORE THE
SUBCOMMITTEE ON
ENVIRONMENT, CREDIT AND RURAL DEVELOPMENT
COMMITTEE ON AGRICULTURE
UNITED STATES HOUSE OF REPRESENTATIVES
Mr. Chairman and Members of the Subcommittee:
I appreciate this opportunity to discuss some of the issues
raised by the reports on derivatives markets prepared by the
Commodity Futures Trading Commission and the U.S. General
Accounting Office. Your letter of invitation also requested that
Treasury represent the views of the Working Group on Financial
Markets. I would like to state at the outset that while the
Secretary of the Treasury is the chair of the Working Group on
Financial Markets, it would not be appropriate for Treasury to
represent the views of the other independent agencies that
participate in the Working Group. However, I will be able to
discuss some of the activities and discussions of the Working
Group with respect to derivatives. I am the senior official
representing Treasury in the staff activities that support the
principals' meetings.
Before I discuss the CFTC's very useful report on OTC
Derivative Markets and their Regulation, I want to comment on a
few matters concerning the CFTC itself.
As this subcommittee is well aware, the legislative process
that culminated in the Futures Trading Practices Act of 1992,
which reauthorized the CFTC, was long and arduous. one, though
far from the only, much-debated issue in that process was the
over-the-counter or OTC derivatives market. The participants in
this fast-growing market were anxious to remove the legal
uncertainty concerning OTC derivative contracts raised by the
Commodity Exchange Act (CEA). Representatives of the futures
industry were concerned about competition in the risktransference business from less regulated competitors.

One of the landmark provisions of the Futures Trading
Practices Act was the exemptive authority in Title V which
enabled the CFTC to remove the legal uncertainty concerning many
over-the-counter derivative transactions due to the possible
applicability of the exchange trading requirement of the
Commodity Exchange Act to these contracts. The CFTC's prompt use
of its new exemptive authority in order to remove the threat that
some OTC derivative contracts might in some future legal
proceeding be found to be illegal under the CEA, and hence
unenforceable, was a very positive and helpful step.
The Congress, though, in reauthorizing the CFTCdecided to
renew the agency's authorization for a period of only two years.
Given the short period that has elapsed since passage of the
Futures Trading Practices Act, the Treasury Department supports
the simple reauthorization bill for a period of five years which
has been introduced by Chairman de la Garza with Chairman
Johnson, Mr. Roberts and Mr. Combest. We believe that the
important policy discussions can and should be severed from
discussion of the CFTC's authorization.
Also, the Treasury believes that it is premature to consider
any other major changes to the CEA concerning OTC derivatives or
any other subject since major changes to the CEA were enacted
recently after a deliberative legislative process that lasted
three years. The Treasury has not concluded that other
legislation concerning OTC derivatives is necessary or
appropriate at this time. Each of the federal financial
regUlatory agencies we have spoken with is reviewing their
regulatory approaches and amending and updating their regulations
and guidance. These regulatory agencies have not exhausted their
existing regulatory authority in responding to the new policy
challenges the OTC derivatives markets pose.
This does not mean that we may not see a need for the CEA to
be amended before five years. For example, the Treasury has had
a continuing interest in a provision of the Commodity Exchange
Act known as the "Treasury Amendment," a provision that was put
into the CEA, on the recommendation of the Treasury Department,
in 1974 at the time of the creation of the CFTC as an agency
separate from the Agriculture Department. Without getting into
too much detail, the Treasury Amendment excludes transactions in
foreign currency, government securities, and a list of other
instruments from the provisions of the CEA unless such
transactions "involve the sale thereof for future delivery
~onducted,on a board,of trade."
The Treasury has a strong
lnterest ln the forelgn currency and government security markets.
In recent years, we have been concerned that a narrow reading of
the Treasury Amendment could stifle innovation and have other
u~desirable impacts on the government securities market, which
Slnce 1986 has been subject to regulation under the Government
Securities Act.

Consequently, we were pleased with the Fourth Circuit
decision in the Tauber case, which holds, among other things,
that options in foreign currency, whether exercised or not, are
excluded from the provisions of the CEA. We are sympathetic to
the law enforcement concerns of the CFTC in connection with
foreign exchange futures contracts marketed to the general
public. We are prepared to work with the CFTC on this issue.
The CFTC's October 1993 report on the OTC Derivative Market
and their Regulation is a useful survey of these markets and
their regulation. In particular, the Treasury agreed with the
principal recommendation that there be an interagency mechanism
to coordinate government policy with respect to OTC derivatives.
Shortly after the release of the CFTC's report, secretary Bentsen
wrote a letter to the other principals of the Working Group on
Financial Markets, the chairs of the CFTC, the SEC, and the
Federal Reserve Board, that effectively reactivated this group
(originally created by Executive Order in the wake of the 1987
stock market crash), directed Under Secretary Newman to
coordinate Treasury's efforts, and put derivatives as a major
item on the Working Group's agenda.
The principals of the Working Group, along with staff, have
been meeting on a regular basis, approximately every four to six
weeks. As someone who has been present, I can assure you that
these meetings are sUbstantive and have had an impact on the work
of and cooperation among the agencies represented.
The staffs of the agencies noted above together with staff
from other interested agencies and bureaus, including the Office
of the Comptroller of the Currency, the Office of Thrift
Supervision, the Federal Reserve Bank of New York, the National
Economic Council, the Office of Management and Budget, the
Council of Economic Advisers, and the Federal Deposit Insurance
Corporation, meet and discuss issues, often more than once a
week. This process has served to enhance the information flow
and working relationships among the agencies.
One example of the agencies' joint efforts is in the area of
improved disclosure. Currently, there is general consensus that
accounting rules and disclosure rules for derivatives-related
activity are inadequate. The Working Group staff, at the
request of the principals and led in this matter by the
Securities and Exchange Commission, has met with representatives
of the Financial Accounting Standards Board to exchange views on
their derivatives-related projects, and encouraged them to
proceed with their projects expeditiously.
Discussions also are underway by the Working Group on such
subjects as the data available to the government concerning
derivatives markets, how the more regulated investors such as
mutual funds and pension funds are using derivatives, capital

requirements for derivatives, and the state of the law regarding
bilateral close-out netting in insolvency situations. The
Working Group is also cognizant that this is an international
market and is undertaking to ensure that the government has
adequate tools to deal with problems that may arise.
with respect to the recently released GAO report on
derivatives, it provides much useful information and presents
recommendations that serve to further the debate. We
particularly agree with the GAO that work needs to be done in the
accounting area. I mentioned previously the activities of the
Working Group and the specific agencies in the accounting area.
While the GAO's assessment that the-derivatives market is
overly concentrated is debatable (15 major U.S. dealers with less
than a 50% market share and sUbstantial foreign competition does
not seem excessively concentrated), we strongly agree with the
GAO report that internal controls and risk management systems for
dealers and end-users of derivatives are vital. This is
consistent with the Group of Thirty report and guidance put out
by the banking regulators. For example, the Office of the
Comptroller of the Currency, which is a part of Treasury, has
issued Banking Circular 277 to the chief executive officers of
all national banks providing guidance to bank management on
managing the risks of financial derivatives.
The GAO report notes that there are "differing views on the
implications of the extent of derivatives use, concentration of
activit¥, and expanded linkages should a financial crisis
occur." The issue of systemic risk is being reviewed by the
Working Group.
However, we do not believe that sufficient information has
been developed at this time to conclude that the unregulated
derivatives affiliates of registered broker-dealers and insurance
companies should be brought under a comprehensive scheme of
federal regulation. As a general principle, there should be a
demonstration that there has been or will be a failure of market
discipline before the need for such broad federal regulation is
advanced. There is no doubt that the tremendous growth in the
use of derivatives and the new forms that derivatives are taking
necessitate that all the federal financial regulators review
their areas of responsibility to see if there are inadequacies or
gaps. That process is underway, and until it has been completed,
it is premature for the type of legislation the GAO recommends
for consideration.

IGAO report, Financial Derivatives: Action Needed to Protect
the Financial System, May 1994, p. 39.

For example, in the area of capital, the marketplace
currently demands that OTC derivative dealers achieve and
maintain high credit ratings. However, the issue of capital
adequacy should be monitored, and, with respect to unregulated
affiliates of broker-dealers and futures commission merchants, it
is our understanding that the SEC and the CFTC currently are
monitoring this closely. Furthermore, over time the impact of
the Market Reform Act of 1990 and the 1992 CEA amendments to
improve the regulators' access to information about the markets
and market participants should be evaluated. The Working Group
is considering these issues, and the communication and
cooperation resulting from these discussions will help to build
consensus for any future changes.
Generally, the OTC derivatives market has worked well, and
we believe that some of the concerns about this market are
exaggerated; nonetheless, diligence and attention to the new
issues are needed. Many users of these markets have found them
helpful for managing their risks or, in some cases, reducing
their financing costs. Derivatives can also be an effective way
to invest. For example, some investors who want to have a
portion of their assets in a smaller, less liquid market such as
an emerging market, might find it more effective to buy a u.s.
security that has a return based on a basket of securities from
that emerging market.
While derivatives offer sUbstantial speculative
opportunities to those so inclined, they also offer customtailored instruments to corporations and others to manage and
reduce their financial risks, thereby enabling them to
concentrate on their businesses. For example, a manufacturer is
presumably expert in the markets for the products it sells but
not necessarily in the potential direction of interest or
currency rates. The OTC derivatives markets, along with the
exchange-traded futures and options markets, can enable a
manufacturer to reduce or manage the financial risks that emerge
from a global business strategy.
With respect to the losses reported by some firms in the
derivatives markets, it appears that certain corporations were in
fact using these markets to speculate. Their experience should
serve as a cautionary tale, and we have heard that the senior
managements of many U.S. corporations are now reviewing their
firms' use of derivatives. It has not been U.S. government
policy for sophisticated U.S. corporations to be protected by
regulation from making bad business decisions with respect to
their finances. The lesson has once more been forcefully made
that speculative positions in derivatives or in the stock and
bond markets directly can lead to substantial losses.
Finally, the Working Group is discussing whether derivatives
are likely to exacerbate severe market movements. The increased

use of derivatives would impact both the details of the
development and the aftermath of a severe market movement. How
the failure of a major derivatives market participant would be
handled (regardless of whether derivatives were the cause) is
also an issue being discussed by the Working Group. The federal
government should make every effort to understand these potential
impacts, and we believe that this is being done, through the
Working Group process, as well as through efforts by the relevant
government agencies. There is a strong commitment by the senior
government officials responsible for financial market issues to
expend sUbstantial resources in monitoring and understanding
these fast-developing and growing markets.
While the Treasury believes that these markets deserve
considerable attention, thought, and study, there is no imminent
threat that requires a quick, aggressive legislative response. On
the contrary, hurried legislative responses run the risk of being
counterproductive.
While the Treasury does not see the need for major
derivatives legislation at this time, as I noted earlier, many
aspects are under discussion. If there comes a time that we
determine the federal government, and particularly the regulatory
agencies, has exhausted its authority in this area and cannot
adequately address problems, we will of course alert Congress to
this and offer our proposals.
Mr. Chairman, that concludes my prepared statement. I
would be happy to respond to any questions the Subcommittee may
have.

DEPARTMENT

THE

TREASURY

NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA A

, D.C .• 20220 • (202) 622-2960

FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
June 14, 1994
REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
NORTII CAROLINA BUSINESS LEADERS
WASlllNGTON, D.C.
Thank you Congressman, and good morning.
Steve Neal, we're going to miss you. I want to thank you for the good things
you've done for North Carolina and for our country.
In March, I was with the President in Dallas, and he went to see the Razorbacks
in a NCAA regional. The next week, he went to North Carolina for the Final Four.
You know what happened against Duke.
I thought at the time: now, he better watch himself. I know he's the first fan, but
North Carolina has more electoral votes than Arkansas and he didn't carry the state.
Well, I notice the President sent the First Lady here today. I'm here. Half the
Administration will be here. You don't think he's making peace, do you?
Last year, I spoke to you before the budget vote. Today, I want to revisit that one
-- to see if you think we messed up the economy, or if we delivered what we promised.
Then I want to talk GATT.
The first two priorities were clear from the first day we walked into office: fix the
budget and create jobs.
I remember in 1988 I ran for Vice President and in the debates I said, if you let
me write $200 billion in hot checks, I could make a country feel good, too. I wish it was
only $200 billion.
When I came into Treasury, we were headed for $300 billion a year. Too many
years of "Let's give everybody the moon, and we'll worry how to pay for it later."
LB-886

-2-

We set a goal -- cut $500 billion in five years. Half from cuts. Half by raising
taxes.
We needed every vote to get it through Congress. We won by one vote.

Let me tell you some results.
We're ahead of schedule on deficit reduction. Ahead of schedule. The deficit
will be down for three consecutive years. First time that's happened since Harry
Truman.
It's a good time to be Treasury Secretary! '
We've cut the payroll. I was speaking to a business group last month, and I said
that since 1992 the federal government has shrunk by 100,000 people. A man yelled out:
"Praise the Lord!"
We've only just begun. We'll cut more than a quarter of a million people.
The fundamentals in the economy are good. I see low inflation -- less than 3
percent. Congressman Neal has been a strong advocate of low inflation.
Some people worry that with a strong economy inflation will rise. Last Friday,
May's producer price index fell 0.1 percent. This morning, we learned the consumer
price index has risen only 0.2 percent in May. Inflation is pleasantly low in this phase of
the business cycle.
Short-term interest rates have risen lately. The Fed raised them as a pre-emptive
strike against inflation. But compared to historical levels, they're low. I remember when
the prime rate was 19 percent and inflation was 13 percent -- and you try selling houses
then.
Rising rates are a worry if they threaten to choke off investment, but I don't see
that at this level.
The economy grew in the first quarter by 3 percent and in last year's fourth
quarter by 7 percent. The Japanese and Europeans would gladly take those numbers.
Of course, Wall Street has a funny way of reacting to numbers. When a company
announces they're downsizing, the stock goes straight up. When the government
announces growth is up -- what happens?
Bond and stock prices tumble. They're worrying we're growing too fast.

-3-

If I understood the financial markets, I wouldn't be Treasury Secretary. I'd be on
my yacht!

Now, our second priority on day one was to create jobs.
Governments shouldn't hire -- businesses should. Since the President took office,
almost 3 1/2 million jobs have been created. By President Clinton's 14th month in
office, more jobs were created than in all four years of the previous Administration.
If you don't think job creation is important, George Bush would not be living in
Houston right now.

Today, 8,000 more people find new jobs every day in America than lose them.
Job creation has not been easy -- not when you pick up the paper and you read
about job losses at the Fortune 500.
I went to the D-Day Ceremonies earlier this month. Fifty years ago, on D-Day,
we had 350,000 Allied troops invade Normandy. Just six American companies have let
go of that many people in the last three years.
When we won Word War TI, veterans came back and found jobs. It wasn't the
same for Cold War vets.
But what you don't read about in the paper is how the big companies outsource to
small businesses, who add a welder here and a salesman there. You don't read about
the entrepreneurs in small firms -- the risk takers.
Our companies are competitive right now. For eight quarters, American
businesses have made double digit investments in equipment. Laborlunit costs have
shown very little increases. Businesses have switched from debt to equity. And they've
refinanced long-term. debt at lower rates.
They're ready to take on the world, and that's the next item on our agenda -GATT. The General Agreement on Tariffs and Trade.
There are what -- 250 people in this room? If this room represented the world,
10 of you would be American customers. That's it. Everybody else would be living in
other countries.
I was in business 16 years. And the way I read that is -- we better meet the
neighbors. That's where the market opportunities will be. That's where the new
customers will be. That's where the growth will be.

-4-

By the year 2000, even leaving Japan out, some 75 million Asian households will
have incomes comparable to middle-income Americans.
In January, I was in China, Thailand, and Indonesia. When you're standing on a
new bridge in Shanghai, or you're watching in Bangkok businessmen use cellular phones
because the traffic is so horrible it's easier to call than to meet -- you realize how fast
those economies are growing.
GAIT has been signed by about 120 nations. It will open markets. It will
globally cut tariffs by one-third. Now it's time for our Congress to ratify it.
It's worth five NAFfAs to us -- that's how big it is. For eight industrial. sectors,
foreign duties will be completely eliminated. For 20 others it'll reduce tariffs. It'll give
solid patent protection. It'll create at least 400,000 jobs, we think.
The reason I say ''we think," is that this agreement is so big, it could have such
far-reaching impact to our businesses, it includes economies that we've hardly dealt with
before -- that our economists haven't had the opportunity to forecast something like this.
So, I'm being conservative in my numbers. It may create hundreds of thousands more
jobs than that.
Look at what we said during the NAFfA debate, vs. what has happened. We
were right.
Since NAFfA, our exports to Mexico are up 16 percent. Soon Mexico could
overtake Japan as our number two export market.
Look at car sales. That was the big concern of the VAW. At this time last year,
the Big 3 sold 2,000 American-made vehicles in Mexico. With NAFfA, they've sold
15,000 units. That's jobs for Americans.
In the last eight years, look at which American industries have boosted their
exports the most around the world. Electrical machinery, up $31 billion. Road vehicles,
up $22 billion. Airplanes, up $18 billion. Computers and office equipment, up $16
billion. Power generating machinery, up $10 billion.
I could go on. Telecommunications, scientific instruments, specialized machinery,
and industrial machinery. Exports are up $152 billion in these categories.
And every one of them will be covered by GAIT. Their growth in the past eight
years m~es up 2.5 percent of e.verything produced in the United States today. That's
growth WIth markets not open like they should be. Think of the expansion opportunities
under GATT.

-5-

Will GATT be good for North Carolina? On balance yes -- but my friends in
textiles aren't convinced yet.
But North Carolina is more than a textile state. North Carolina is a big producer
of electrical equipment, chemicals, and furniture -- and it will be good for all of that.

It will be good for the high-tech quarter around Research Triangle Park.
The numbers are preliminary, but 10 years from now, we think the U.S. will
export an extra $200 billion per year because of GAIT.
Of that $200 billion, $8 billion, or four percent, will be produced in
North Carolina. Employment in North Carolina will rise by 16,000, vs. having no GATT.
During the NAFfA debate and during the budget debate -- we argued that you
need to pass something, or else all you'll get is the status quo, and the status quo wasn't
good.
This one's different.

No GATT, and we don't even get to keep the status quo.

Say you're a company in France or Germany that sells products to England.
England cuts the tariff for the French and Germans. But England may not cut the tariff
for the Americans, if we don't sign up.
So, our businesses have just taken a big hit, haven't they? It would be a
tremendous disadvantage for them vs. their French and German competition. That's not
keeping the status quo, that's putting them 10 points under.
If we don't sign up for GATT, it would send a shockwave around the world.
Where is the U.S. going? We lead the fight for seven years -- through three Presidents -to negotiate this, and now we turn our backs.

I have the Chancellor of the Exchequer from England, I have the Finance
Minister of France, I have the Finance Minister of Germany -- all calling me and saying:
"Lloyd, is it possible? Is it possible that the United States would not ratify GATT?"
They're asking because there's a catch to GAIT. GATT will take $12 billion in
lost revenues from the budget. And under the budget rules, we have to make that up -every last dime of it.
We get no credit that once business expands because of GAIT more revenues
will come in. No credit that over the next 10 years, because of the increase in business,
this could reduce the deficit by $60 billion.

-6-

They don't have such provisions in the budgets of England, France, and Germany.
Only us.
Having been in the Senate, I know what happens if you waive the budget for
GATT. It's a slippery slope down. We can't fudge this one.
I tell those finance ministers, it'll pass. We'll find the money. It will be tough,
but we'll find it.
Let me end where I started: I said the first day on the job, our priorities were
clear: cut the deficit and create jobs.
Now on the agenda we have health care and the crime bill to pass. But look at
GAIT. It goes back to the fundamentals we set out to do on day one. It will create
jobs. It will cut the deficit. We need to seize that opportunity.
So I hope you can help on this one. We'll need you.
-30-

DEPARTMENT

THE

TREASURY

,"NEWS

IREASURY

omCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C. • 20220. (202) 622-2960

FOR RELEASE AT 2:30 P.M.
June 14, 1994

. CONTACT:

Office of Financing
202/219-3350

TREASURY'S WEEKLY BILL OFFERING

The Treasury will auction two series of Treasury bills
totaling approximately $24,000 million, to be issued Ju~e 23,
1994. This offering will result in a paydown for the Treasury of
about $1,775 million, as the maturing weekly bills are
outstanding in the amount of $25,771 million.
Federal Reserve Banks ~old $6,174 million of the maturing
bills for their own accounts, which may be refunded within the
offering amount at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $1,888 million as agents for
foreign and inter~ational monetary authorities, which may be
refunded within the offering amount at the weighted average
discount rate of accepted competitive tenders. Additional
amounts may be issued for such accounts if the aggregate amount
of new bids exceeds the aggregate amount of maturing bills.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C.
This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of the new securities are given in the
attached offering highlights.
000

Attachment

HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED JUNE 23, 1994

June 14,

1994

Offering Amount

$12,000 million

Description of Offering:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Currently outstanding
Minimum bid amount
Multiples

91-day bill
912794 L7 7
June 20, 1994
June 23, 1994
September 22, 1994
September 23, 1993
$28,115 million
$10,000
$ 1,000

182-day bill
912794 P5 7
June 20, 1994
June 23, 1994
December 22, 1994
June 23, 1994
$10,000
$ 1,000

The following rules apply to all securities mentioned above:

Submission of Bids:
Noncompetitive bids
Competitive bids

Maximum Recognized Bid
at a Single Yield

35% of public offering

Maximum Award .

35% of public offering

Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms

Prior to 12:00 noon Eastern Daylight Saving time
on auction day
Prior to 1:00 p.m. Eastern Daylight Saving time
on auctiWl day
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date

OFFICE OF PUBliC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.•

W~HINGTON,

D.C. • 20220 • (202) 622-2960

For Release Upon Delivery
Expected at 10:00 a.m.
June 15, 1994

STATEMENT OF THE HONORABLE

FRANK N. NEWMAN
UNDER SECRETARY OF mE TREASURY
(DOMESTIC FINANCE)
BEFORE THE COMMIITEE ON BANKING,
HOUSING, AND URBAN AFFAIRS
UNITED STATES SENATE
JUNE 15, 1994

LB-888

Statement of the Honorable Frank N. Newman
Under Secretary of the Treasury
(Domestic Finance)
on Federal Home Loan Bank Reform
Before the
Committee on Banking, Housing, and Urban Affairs
United States Senate

June 15, 1994
Summary
•

The testimony discusses the Treasury's views on the findings of five
reports on the Federal Home Loan Bank System mandated by the
Housing and Community Development Act of 1992.

•

The Treasury agrees with the reports that the System needs
significant reform and that the interconnectedness of major issues
involved -- capital, membership, regulation and governance, mission,
REFCorp -- requires comprehensive, not piecemeal, legislation.

•

Besides protecting taxpayers, System capital structure and capital
requirements should preserve the System's cooperative nature.
Capital requirements should be risk-based and easily implemented.
There should be sufficient time resilience to redeemable member stock
so that it is unlikely that too much capital will drain out of the
System at anyone time. The possibility that a member could not
redeem all of its stock investment if the FHLBank were facing serious
financial difficulties should provide members with a strong incentive
to ensure that such conditions are avoided through prudent riskmanagement practices.

•

Different capital options are being explored. There are a number of
concerns with any capital structure that calls for publicly traded
stock. Fixing the weaknesses with the System's capital structure does
not necessarily require a complete overhaul of the current structure.
The Administration will develop comprehensive legislation which will
include capital recommendations early next year.

•

The Bank System's regulator, the Federal Housing Finance Board
(FHFB), currently has three sometimes conflicting responsibilities -program oversight, safety and soundness regulation, and governance.
The Administration is examining how the Bank System's safety and
soundness regulation can best be strengthened and how the rest of the
FHFB's current responsibilities should be distributed.

•

Membership in the System should be voluntary for all eligible
members and membership rules should apply equally to all System
members. All members should have the same incentives with regard
to the System and share the benefits and obligations of membership
equally. Member institutions should have at least 10 percent of their
assets in whole residential mortgages to strengthen the nexus between
membership and mortgage lending.

•

The System's public mission should be to support mortgage lending
and community development lending in a safe and sound way. The
collateral requirements for advances should remain unchanged
because the current collateral requirements minimize the credit risk
in making advances and preserve the link between advances and
mortgage lending.

•

The overall strength of the Bank System could be imprOVed by
altering the internal allocation of the REFCorp obligation. With
voluntary membership, equalized access to the Bank System, and
restructured capital rules, a change in the allocation formula may be
both appropriate and acceptable to the majority of System members.

For Release Upon Delivery
Expected at 10:00 a.m.
June 15, 1994

STATEMENT OF THE HONORABLE
FRANK N. NEWMAN
UNDER SECRETARY OF THE TREASURY
(DOMESTIC FINANCE)
BEFORE THE COMMITTEE ON BANKING,
HOUSING, AND URBAN AFFAIRS
UNITED STATES SENATE
JUNE 15, 1994

Chairman Riegle, Senator D'Amato, and members of the
committee, thank you for the opportunity to discuss the
Treasury's views on the recently completed reports on the Federal
Home Loan Bank System and to offer the Treasury's thoughts on
developing a comprehensive legislative proposal to modernize the
Bank System. We are happy that the Congress and the
Administration are working together to review systematically the
purposes, operations, and safeguards of the Bank System.
The reports being discussed today all show that the Bank
System remains a healthy and important part of our housing
finance system. Yet they also point to the need for
comprehensive updating of the System's mission, structure,
capital requirements, and regulatory oversight. Today's hearing
will be an important supplement to the reports and is the
appropriate next step in the process. Together with the reports,
today's hearing should help provide a map for the Administration
and the Congress in developing a comprehensive legislative
package to update and strengthen the Bank System to keep it a
vibrant source of housing credit into the 21st century. On
behalf of the Administration, the Treasury Department looks
forward to introducing such a legislative proposal by early next
year.

I. Recent Reports Point to the Need for
comprehensive Restructuring of the Bank system
Since its inception in 1932, the Federal Home ~oan Bank
System has been an important source of mortgage cred1t for home
buyers. Federal Home Loan Banks sell bonds in the securities
market at rates only slightly higher than.Treas~ry's and lend the
proceeds (in the form of advanc:s) to the1r thr1ft and ban~
institution owner-members, who 1n turn are able to lend th1s
money to home buyers. Debt securities of the Bank System, like
those of other Government-sponsored enterprises (GSES), trade in
the market at yields that reflect a perception of an implicit
Government guarantee although no such guarantee, either expressed
or implied, exists. Also, interest earned on Federa~ Home Loan
Bank debt securities is exempt from state and local 1ncome taxes.
The housing finance market has changed dramatically since
Two other housing-related GSEs, the Federal National
Mortgage Association (Fannie Mae) and the Federal Home Loan
Mortgage Corporation (Freddie Mac), as well as the Government
National Mortgage corporation (Ginnie Mae) and various private
firms now provide means for depository institutions to sell the
mortgages they originate into the secondary market.
1932.

At the same time, the Bank System continues to operate
largely as it was initially structured and it remains oriented
towards depository institutions that originate and hold mortgages
in their own portfolio. As of April 30, 1994, the Bank System
had about $187 billion in assets, of which $101 billion was
advances outstanding and $83 billion was investment securities
(including about $27 billion in mortgage-backed securities).
The Financial Institutions Reform, Recovery, and Enforcement
Act (FIRREA) of 1989 introduced the first major structural
changes to the Bank System by opening System membership to
commercial banks and credit unions that met threshold tests for
mortgage lending. As of April 30, 1994, the System had added
2,524 commercial bank members and 62 credit union members, which
together with the 2,139 thrift members and 19 insurance company
members brings total membership to 4,744 institutions. Thus,
more than half of all System members are now commercial banks.
FI~A added two new public policy goals for the Bank System.
It
requ1red each Federal Home Loan Bank to establish an Affordable
Housing Program (ARP) in which the Bank makes subsidized advances
and grants for qualifying affordable housing ventures. FIRREA
also made the Community Investment Program (CIP) a statutory
requirement in which the Banks make at-cost advances for
qual~fying mortgages and community development purposes.
FIRREA
requ1red the Bank System, which at the time was owned primarily
by ~avings and loan associations, to help pay for the cost of the
thr1ft cleanup. The Act directed the Bank system to contribute
$2.5 billion of its retained earnings to capitalize the
- 2 -

Resolution Funding Corporation (REFCorp) and required the System
to pay $300 million a year for 40 years towards interest payments
on bonds issued by REFCOrp (this is known as the REFCorp
obligation).
The Housing and Community Development Act of 1992 called for
five comprehensive studies of the Federal Home Loan Bank System.
These studies, prepared by the Department of Housing and Urban
Development (HUD), the Federal Housing Finance Board (Finance
Board), the General Accounting Office (GAO), the Congressional
Budget Office (CBO), and the Federal Home Loan Bank stockholder
Study Committee, provide us with an assessment of the System's
current structure, including the changes made in FIRREA. The
reports generally conclude that the System continues to serve an
important function and that it operates in a safe and sound
manner. Yet most of the reports also urge that comprehensive
changes be made to keep the Bank System vital and healthy. Let
me briefly summarize for you some of the important conclusions
from these reports and offer the Treasury's assessment of these
conclusions. I will begin with the future role and structure of
the Bank System, and then discuss how to ensure its continued
safety and soundness.
A.

The Bank System's PUblio KissioD Should be to Support
Kortqaqe Lendinq and Community Development Lendinq

Most of the reports noted the lack of an explicit statement
of public purpose, or mission, for the Bank System and several
offered possible mission statements. There was a general
consensus among the reports that the primary purpose of the Bank
System should continue to be facilitating the provision of
housing credit through low-riSk, collateralized advances to home
lenders. The HUD and Finance Board reports each recommend that
this current purpose be broadened to encompass community
development lending.
The Treasury Department agrees with the need for an explicit
mission statement for the Bank System and endorses the statement
of purpose in the HUD report:
The Federal Home Loan Bank System is a profit-making
enterprise whose purpose is to support residential mortgage
lending (including mortgages on housing for low- and
moderate-income families), as well as community development
lending, throughout the Nation, safely and soundly,
primarily through a program of collateralized advances to
system members. The System facilitates such lending by
increasing the liquidity and improving the distribution of

3 -

investment ca~ital available through its member
institutions.
We believe that this statement of purpose affirms the important
role played by the Bank System in making mortgage credit
available while also recognizing the appropriate use of advances
to finance community development activities for target7d areas
and populations. The statement of purpose also recogn1zes the
need for the system to be a profit-making enterprise and the
fundamental need that the System operate safely and soundly.
Importantly, we also strongly affirm the rec~mmendation in the
HUD report that collateral requirements rema1n unchanged. These
requirements serve two critical purposes: (1) they serve to
minimize the credit risk in making advances, and (2) they
preserve the link between advances and mortgage lending.
This statement of purpose also limits the possible new
products and services that could be offered by the Federal Home
Loan Banks. We believe that is appropriate, since any GSE should
be limited to a well-defined line of business. We concur with
the conclusions reached in the reports that permitting Federal
Home Loan Banks to securitize mortgages or make construction
loans would be an inappropriate expansion of system activities
because these activities are already established in the
marketplace. Also, we generally concur with the strict criteria
developed in the GAO and Stockholder study committee reports that
could be used by the regulators to assess the appropriateness of
possible new Bank system activities.
B.

Membership Rules Should Consistently Apply to all system
Members

By permitting commercial banks and credit unions to join the
Bank System, FIRREA fundamentally altered the System's membership
structure. Prior to 1989, nearly all Federal Home Loan Bank
members were required by statute or regulation to be System
members. Today, over half of all System members are voluntary
m7mbers: ~at ~s~ th 7y have freely chosen to join the System and,
w1th certa1n 11m1tat1ons, they can also freely exit the System.
In addition, state-chartered, Savings Association Insurance Fund
(SAIF) insured savings associations, Which are currently
ma~dat~ry member~, will become voluntary members next April.
Th1S w111 leave Just federally chartered, SAIF-insured savings
as~ociati~ns as mandatory members. All the reports agree that
th1S part1cular structure of two membership classes--mandatory
1

U.S. Department of Housing and Urban Development, Report to
Congress on the Federal Home Loan Bank System, April 19, 1994,
page 21.
- 4 -

and voluntary--is unfair to the mandatory members and may result
in differing risk management incentives between the two groups.
We concur that System membership should be voluntary for all
eligible members. Voluntary membership has several attractive
features. First, it provides a clear market signal as to whether
the Bank System provides economic value to its members. If the
system no longer provides value, now or in the future, members
would be expected to leave the System, thereby sending a clear
message that this GSE may no longer be needed. Second, it gives
all members the same incentives with regard to the System. Since
all members could request to leave the System if their Bank began
to experience financial difficulty, voluntary members would no
longer be able to "put" their share of the Home Loan Bank's
embedded losses to the mandatory members. Third, voluntary
membership creates better incentives for Federal Home Loan Bank
managers to operate their Banks efficiently and to be responsive
to their member/shareholders. While important transitional
issues exist with making membership fully voluntary, we believe
that this change can be done in a way that actually improves the
System's safety and soundness by putting all members on the same
footing.
consistent with making membership voluntary for all eligible
institutions, we believe that the same rules of access should
apply to all members. Membership rules should not differentiate
either stock purchase requirements or access to advances based on
whether or not a member satisfies the qualified thrift lender
(QTL) test.
Finally, as recommended in the reports, we believe that
membership eligibility should not be extended beyond the
currently eligible group of depository institutions and insurance
companies. In fact, we believe that eligibility requirements
should be somewhat tighter than they are today. We agree with
HOD'S conclusion that member institutions should have at least 10
percent of their assets in whole residential mortgages and that .
this should be an ongoing requirement that members should
satisfy.
This raises an important concern in formulating changes to
the System's mission and membership rules. We do not want to see
"Home Loan" taken out of the Federal Home Loan Bank System. This
means that the system's activities should not expand beyond
housing finance and community development. It also raises the
question of the linkage between advances and members' support of
housing finance.
There needs to be a continual evaluation of whether the
System is satisfying its public policy purpose of supporting
housing finance. One test of this needs to be members' minimum
commitment to housing finance. Members that satisfy the QTL test
- 5 -

demonstrate a serious commitment to housing finance. It is less
clear that a depository institution with only ten percent of its
assets in mortgages has the same relative commitment. At a
minimum, we believe that the program regulator should be able to
increase, but not decrease, the statutory threshold test defining
an institution's commitment to housing finance in order to be
eligible for System membership. A higher threshold would
strengthen the nexus between membership and mortgage lending.
Finally, it is crucial that collateral rules retain their
focus on mortgage loans both to maintain the System's safety and
soundness and to uphold the link between advances and housing
finance. Therefore, we join in HOD's recommendation that
collateral rules not be changed in order to control the System's
risks and preserve the System's basic orientation toward
residential lending.

Fixed FIRREA obliqations Impose a Heavy Financial Burden on
the Federal Home Loan Banks

FIRREA imposed two fixed financial obligations on the
Federal Home Loan Bank System that must be considered in any
assessment of the System. The REFCorp obligation, which I
mentioned earlier, obligates the Bank System to pay $300 million
annually toward the cost of protecting federally insured deposits
in savings and loans that have failed over the last five years.
This $300 million is allocated among the twelve Home Loan Banks
in two steps. First, each Bank must pay up to 20 percent of its
net income. Should the total of the Banks' initial assessment be
less than $300 million, the Banks are assessed for the remainder
on the basis of their outstanding advances to members with
deposits insured by SAIF. The second FIRREA obligation is AHP.
This year, the Bank System must pay the greater of $75 million or
6 percent of its preceding year's income towards AHP. In 1995
and in subsequent years, the Bank System must pay the greater of
$100 million or 10 percent of its preceding year's income. Taken
together, the fixed FIRREA obligations absorb $400 million or
more of the System's annual earnings.
The problems with the fixed nature of these obligations are
well documented in several of the reports. The GAO report, in
particular, provides a complete description of the problems
associated with the fixed nature of the REFCorp and AHP
obligations, and thr allocation formula used to assess the
REFCorp obligation.
still, as the reports each describe,
budgetary considerations impede any obvious solution to the
~.S. General Accounting Office, Federal Home Loan Bank
System: Reforms Needed to Promote Its Safety, Soundness, and
Effectiveness, GAO/GGD-94-38, December 8, 1993, pp. 33-48.
- 6 -

current formulas outside of reallocating the REFCorp burden
within the Bank System.
We believe the overall strength of the Bank System would be
improved by altering the internal allocation of the REFCorp
obligation. Therefore, we are looking at the possibility of
altering the current REFCorp allocation formula as part of our
overall structural reform package. That is, with VOluntary
membership, equalized access to the Bank System, and restructured
capital rules, a change in the allocation formula may be both
appropriate and acceptable to the majority of System members.
For example, the 20 percent first-round assessment could be
increased over time or the basis for the second-round allocation
could be modified. Ideally, any such change could allow for a
reduction in, or eventual phase-out of, Federal Home Loan Banks'
holdings of mortgage-backed securities.
The Treasury is concerned with the added risks being
undertaken by Federal Home Loan Banks in order to meet the fixed
FIRREA obligations, especially the reliance on a large portfolio
of investment securities (including mortgage-backed securities)
to generate the earnings needed to satisfy these payments. While
we appreciate the earnings pressure created by the FIRREA
obligations, we are disturbed by the arbitrage between one type
of GSE debt security and another GSE debt security currently
taking place.
While the approaches to this arbitrage take many specific
forms, a general example would be a Bank purchasing a mortgagebacked security that yields, say, 90 basis points over a
comparable duration Treasury security, and funding it with a
system debt security of equal duration on which the Bank pays,
say, 30 basis points over a comparable Treasury security. In
this relatively simple example, the Bank would earn a spread of
60 basis points. Thus, a $5 billion investment like this could
yield about $30 million per year. However, the realized yield is
likely to be different than this because market interest rate
movements could have substantially different impacts on the
durations of the Bank's liabilities and the mortgage-backed
securities. Also, in practice, a Federal Home Loan Bank will
likely fund a group of mortgage-backed securities with a group of
debt securities of various maturities and other characteristics.
The primary reason a spread exists at all is the interest
rate risk inherent in the mortgage-backed security, including the
risk that mortgage prepayment speeds may change as interest rates
change. As this risk is mitigated through various hedging
strategies, the spread actually earned will fall. While the
Finance Board has restrictive policies to limit the risks that
may be undertaken, and the Federal Home Loan Banks each actively
manage the interest rate risk embedded in their mortgage-backed
securities portfolio, there are no perfect hedges in this type of
- 7 -

activity. Therefore, at a m~n~mum, we believe that such
investments (and, in fact, the entire investment securities
portfolio) should continue to be subject to strict limits
established by the safety and soundness regulator and in any
event should not be permitted beyond the level dictated by the
earnings pressure resulting from the fixed obligations. We
should also note that this activity does not add to the overall
pool of funds financing home mortgage loans, and transfers
interest rate risk from the private sector market to a GSE.

II.

Restructuring system capital Should strengthen
the system's Long-Run safety and Soundness

As the five Federal Home Loan Bank reports note, the Bank
system as a whole may well have more capital than it needs, given
its current risk profile, but it also has the unusual
characteristic that its capital lacks permanence. Currently, 65
percent of System members are voluntary members, and another 8
percent of members -- state-chartered savings associations -will be VOluntary members beginning in April 1995. Voluntary
members may elect to leave the System and redeem their capital
stock upon exiting the system.
Most of the reports note that the Finance Board has
conflicting responsibilities as the system's governor, safety and
soundness regulator, and program regulator. Ensuring the
system's long-run safety and soundness requires both an
appropriate capital structure and regulatory capital
requirements, and a strong, independent safety and soundness
regulator.

Goals and criteria for Restructuring Bank System capital

The basic goal in establishing a regulatory capital
structure for the Bank System is to ensure that taxpayers are
protected from any losses incurred by the System and from any
problems associated with a shrinking membership base. For
example, failure to make the annual REFCorp payment would likely
increase taxpayer outlays. Thus, one implication of this goal is
that the System must have SUfficient capital to fund the assets
needed to pay the fixed FIRREA obligations each year.
Besides protecting taxpayers, we believe that a second
appropriate goal in establishing a capital structure and capital
requirements for the Bank System is to preserve the System's
cooperative nature. We believe the cooperative nature of the
Bank system is worth preserving because it: (1) aligns the
interests of members and shareholders because the members are the
shareholders (in particular, it reduces the moral hazard problems
associated with divorcing ownership risks from the benefits and
- 8 -

obligations of borrowing advances); and (2) keeps the benefits of
the Bank System that derive from its status as a GSE with housing
lenders and their customers.
A third goal is to have a regulatory capital structure that
promotes the economic efficiency of System operations.
Combined with these goals, we believe the following criteria
should be used in assessing alternative capital structures for
the Bank System:
•
•
•
•
B.

capital requirements should be risk-based;
capital structure should allow individual Home Loan Banks to
grow and shrink over time (this is especially important
given the cyclical nature of the demand for advances);
capital structure should not impede future consolidation
among Home Loan Banks; and
a new capital structure should be easily implemented.
The Reports Offer Several options for Restructuring Federal
Home Loan Bank Capital

While the five reports offer a number of approaches to
restructuring Bank system capital, there is general agreement
among them as to the basic risks undertaken by the Federal Home
Loan Banks. First, credit risk is minimal. Advances are
overcollateralized loans (that is, loans that are secured by a
members' assets where the assets posted as security substantially
exceed the value of the loan) and, beyond that, the Home Loan
Banks have a priority interest in the assets of failed members.
with respect to investments, the Finance Board's Financial
Management Policy appears to limit the securities eligible for
investment to only those with minimal credit risk.
A relatively new area of credit risk exposure for the System
is in off-balance sheet activities. As the System relies
increasingly on structured debt financing, it incurs credit risk
in the derivatives transactions that are integral to such
financing. For example, a Bank could provide a member with
adjustable rate funding by issuing a fixed rate bond and entering
into a swap agreement with a third party where the fixed rate
cash flow is exchanged for the desired variable rate cash flow.
In this example, the Bank has credit risk in that the failure of
the third party could disrupt or cancel the swap agreement.
Home Loan Banks incur interest rate risk in both the
advances they make and the investments they hold. Interest rate
risk from advances is mitigated, but not eliminated, by
prepayment penalties assessed when an advance is prepaid. With
regard to investment securities, the Finance Board limits the
amount of interest rate risk a Bank may undertake. However, the
-

9 -

current capital rules are unrelated to a Bank's interest rate
risk. Furthermore, the large holdings of medi~ ~nd long-~erm
investments particularly mortgage-backed secur1t1es, rema1n a
concern bec~use of the interest rate risk associated with funding
such assets. Finally, as with any financial institution,
management and operations risks are also important.
The reports each suggest that Home Loan Bank capital
requirements be restructured in some way. This restructuring
involves both the amount and type of capital required. In
general, there has been a call for more permanence in the capital
base and a closer connection between risk-taking and required
capital. A number of alternatives were suggested including:
•

Establish a core (minimum) capital requirement equal to that
set for Fannie Mae and Freddie Mac (2.5 percent of assets
plus 0.45 percent of off-balance sheet obligations).

•

Develop a risk-based capital requirement modeled after that
used for banks and thrifts. Federal Home Loan Banks could
be required to hold appropriate levels of risk-based
capital, with advances weighted at 20 percent.

•

Use stress tests like those being developed by the Office of
Federal Housing Enterprise Oversight for Fannie Mae and
Freddie Mac. Specific proposals regarding stress tests
included using them to monitor interest rate risk or
requiring the Banks to hold retained earnings sufficient to
pass an interest rate risk stress test.

•

Issue stock to the general public.

•

Change the weight used for Home Loan Bank stock in the bank
and thrift risk-based capital requirements to that
appropriate for an equity investment.

Other capital structures we have explored include
establishing a permanent capital base through a required
membership fee. Under another option, the Bank System could be
encouraged to establish a larger permanent capital base in the
form of retained earnings, while reducing the amount of
redeemable capital as well as total capital. The Federal Home
Loan Banks could be encouraged to retain earnings by clarifying
3

Because the Federal Home Loan Banks undertake minimal
credit risk, ,a credit risk stress test may not be meaningful.
See cong~ess1~nal Budget Office, The Federal Home Loan Banks in
the Hous 7ng F1nance System, July, 1993, p. 42-43, for an
e~lanat10n of the technical difficulties in applying a creditr1sk stress test to the Banks.
- 10 -

that such earnings were the private property of the System's
members with appropriate Constitutional protections. Finally, we
understand that the Bank system has recently formed a committee
of stockholders, public interest directors, and Bank presidents
to consider alternative capital structures. The committee
expects to have a proposal by this Fall and we look forward to
considering the results of its work as well.
Rather than describe all the merits and limitations
associated with each of these proposals (most of which may be
found in the reports), I would like to voice the Treasury's
concerns about problems that would be presented if publicly
traded stock were issued by the Bank System. Then I would like
to outline the Treasury's thoughts on an appropriate capital
structure.

Publicly Traded stock Could Introduce a Number of problems

We have a number of concerns with any capital restructuring
proposal that calls for publicly traded stock in the Home Loan
Bank System, whether that stock is issued on a System-wide basis
or Bank-by-Bank. Perhaps the most significant concern is how
publicly traded stock would change the incentives underlying Bank
management. Moving to publicly traded stock would mean that the
System would be expected to pay explicit returns to shareholders,
which would be in the form of dividends and stock price
appreciation. CUrrently, however, System members receive
substantial implicit returns in addition to the explicit
dividends paid on redeemable stock (there is no price
appreciation on redeemable stock; it is always carried at par).
The implicit returns to members include immediate access to
liquidity (which permits members to maintain fewer liquid assets
on their balance sheets) and structured financing. without the
ability to benefit from these implicit returns, public
shareholders may encourage the Banks to accept greater risks and
to seek out new activities to increase profits. Generally,
public shareholders may encourage the Banks to maximize any
subsidy inherent in the Banks' GSE status, which would run
counter to public policy interests in keeping the system low-risk
and focussed on specific types of financing that support the
public interest.
Publicly traded stock also may be inconsistent with most of
the criteria described above for system capital. For example,
publicly traded stock could make it difficult for Home Loan Banks
to shrink and may inhibit consolidation if the stock is issued on
a Bank-by-Bank basis. Moreover, implementing such a radical
change would be very complex, especially given the fixed FIRREA
obligations. It might also lead to numerous unintended
consequences such as:
-

11 -

The amount of publicly traded stock that could be
successfully sold would depend on the market's forecast of
future system income rather than th7 value th7 system has
for its members. Furthermore, publ~c ownersh~p could give
the system an incentive to stretch its powers to take on
more risk and increase profits.
•

If publicly traded stock were preferred stock, thereby
having priority over members' common stock, then the
.
dividends required for the preferred stock could be so h~gh
that in some Banks little or no income would be left for
dividends to holders of the common stock. All the reports
note the earnings strain created by the fixed FIRREA
obligations; adding required dividends on preferred stock
would increase the System's fixed obligations.

•

If members' redeemable stock were made preferred stock,
thereby having priority over the publicly traded common
stock, then without additional measures to improve System
income it is unclear that the Banks would be able to sell
the common stock. If common stock were sold to the public,
the members could conceivably exit the system, leaving the
public shareholders with responsibility for the REFCorp
obligation. In such a structure, shareholders would
discount what they would be willing to pay for such stock.

•

Publicly traded stock would change the cooperative nature of
the System.

The Existing Capital structure Can be strengthened and
capital Levels set Based on Risk

As I have already noted, the five reports suggest a variety
of possible improvements to the System's capital structure, all
of which we are considering. Many of these proposals are
actually refinements of the existing structure. This suggests
that fixing the weaknesses with the System's capital structure
does not necessarily require a complete overhaul of that
structure. Rather, a strong yet flexible capital structure can
be developed simply by strengthening the existing capital's
permanence, combined with a more rational, risk-based approach to
setting the required level of capital.
We are still working out the specifics of what changes would
and how they would be
some of our general thinking
at this point. "Permanent" capital as we use it means ensuring
there is sufficient time resiliency to redeemable member stock so
that it is unlikely that too much capital will drain out of the
Sys~em as members shrink or withdraw.
As noted earlier, the
bas~c goal for the government is for capital to be sufficient, at
~eed to be made for such an approach
~mplemented.
Let me outline for you

- 12 -

a minimum, to protect taxpayers and ensure payment of the fixed
FIRREA obligations. This can be accomplished by retaining the
existing redeemable common stock structure but making redemption
subject to more stringent conditions than exist today. The
possibility that a member could not redeem all of its stock
investment if its Home Loan Bank were facing serious financial
difficulties should provide members with a strong incentive to
ensure that such conditions are avoided through strong riskmanagement practices in the Home Loan Banks.
Today, a voluntary member may withdraw from the System and,
upon six months notice, have its Bank stock redeemed at par
unless the Finance Board finds that the Bank's paid-in capital
is, or is likely to be, impaired. In that event, the Finance
Board may make a pro rata redemption. Additional limitations on
redemption could be established. For example, a limit could be
placed that did not allow capital to fall below a regulatory
required level. Similarly, prompt corrective action rules could
be developed that would specify limits on dividend payments and
capital redemptions in specified situations. Redemptions might
not take place in a lump sum, but rather could be done using two
or three payouts over a fixed period, with some allowance for
accelerated redemptions if a Bank sufficiently exceeds its
minimum capital requirements.
With clearly defined rules governing redemptions, including
prompt corrective action rules, members should be otherwise free
to enter and leave the System. Provided a Home Loan Bank meets
its capital requirements and related rules, there should be no
further impediments to a member withdrawing from the System and
redeeming its capital stock in an orderly fashion according to a
predetermined schedule. Of course, transition rules would need
to be carefully developed if such changes to System capital rules
were introduced concurrent with the introduction of full
voluntary membership. Also, we believe that the existing ten
year moratorium on rejoining the System after withdrawing from it
should be retained.
It is also important to select an appropriate formula for
determining the minimum amount of capital each Federal Home Loan
Bank should have for regulatory purposes. The Banks should have
sufficient capital to ensure payment of the fixed FIRREA
obligations and to avoid any direct or indirect taxpayer expense.
This suggests that a minimum capital requirement for Home Loan
Banks should require capital at least equal to the present value
of the REFCorp obligation plus some risk-based amount. The riskbased amount could be constructed as the sum of two elements, one
element for credit risk -- both on- and off-balance sheet -- as
well as management and operations risks, and the other element
for interest rate risk.

- 13 -

For the first element, as suggested in several of the
reports, the risk-based capital rules for commercial banks could
be applied to the Home Loan Banks. Although the Home Loan Banks
have minimal credit risk in the advances themselves, they have
credit risk in off-balance sheet obligations and they have
management and operations risks. Because of the low credit risk
in Home Loan Banks, we expect that it may be possible to set this
requirement slightly lower than it is set for commercial banks.
The larger measurable risk in the Bank System, and one that
we believe must be carefully measured and controlled, is interest
rate risk, including the interest rate risk implicit with offbalance sheet liabilities. Therefore, the second risk-based
element we propose would require each Home Loan Bank to have
sufficient capital to withstand significant interest rate shocks
of various types. The exact approach for such stress tests and
the determination of how much capital would be needed to pass
them remain open questions at this time. While quite
preliminary, our initial estimates suggest that current System
capital is more than sufficient to meet the overall capital
requirements suggested here, as long as the System's mix of
assets and liabilities stays approximately as it is now and
interest rate risk is adequately hedged.
While changes are needed in the statutory requirements
governing system capital, the safety and soundness regulator
should also be given authority to adjust the Banks' capital
requirements over time. For example, the System's safety and
soundness regulator should have the authority to establish
minimum requirements for retained earnings.
As with any GSE, one of Treasury's primary concerns is the
GSE's safety and soundness. We believe that the steps outlined
here can strengthen System capital, make the level of required
capital sensitive to the amount of risk undertaken by a Bank,
continue to give member/shareholders a strong incentive to
control risk-taking by Bank management, and make System
membership economically beneficial for depositories that have a
focus on home mortgage lending.
E.

strong, Independent Safety and Soundness Regulator Also
Needed to Ensure the Bank system Remains Safe and Sound

Most of the reports described the problems associated with
the Finance Board's conflicting roles as governor/manager for the
System, safety and soundness regulator, and programmatic
regulator. The HOD, GAO, Finance Board, and Stockholder Study
committee reports each recommended that the management function
be separated from the regulatory functions. The HOD and GAO
reports recommended merging the Finance Board's safety and
soundness function into OFHEO while assigning programmatic
- 14 -

oversight to the Secretary of HUD. 4 This would put federal
oversight of all three housing GSEs--the Bank System Fannie Mae,
and Freddie Mac--in the same places.
'
We agree that the Finance Board's current responsibilities
are in conflict. We further believe that it is essential that
the Bank System have a strong, independent safety and soundness
regulator to implement the regulatory reforms of the Bank System
that will be part of our comprehensive reform package. We
recognize that OFHEO is a new agency and that its staff is
working diligently to discharge their responsibilities with
respect to Fannie Mae and Freddie Mac. Given HUD's
recommendation, we are examining how the Bank System's safety and
soundness regulation can best be accomplished and how the rest of
the Finance Board's current responsibilities should be
distributed.
III. Comprehensive Reform is Needed Because of
the Inter-relationships Amonq the Various Issues
The five reports on the Federal Home Loan Bank System
mandated by the Housing and community Development Act point the
direction for comprehensive reform and updating of the Bank
System. These studies each covered thirteen broad questions
concerning the System. It is important to note that in the broad
areas I have described this morning, there is general agreement
across the five reports. This is good news, Mr. Chairman, for it
suggests that a consensus on comprehensive reform is achievable.
To summarize, the reports generally agree that (1) the Bank
System serves an important function in making credit available to
housing lenders; (2) membership rules need to be made consistent
for all eligible members; (3) the Bank System should be able to
continue meeting its FIRREA obligations, although the burden of
those obligations is adding risk to the System and has certain
perverse incentives; (4) Bank System capital needs to be
restructured, with greater permanence given to System capital,
and capital levels should be risk-based; and (5) the current
responsibilities of the Finance Board to be both manager and
regulator need to be separated. The Treasury Department concurs
with each of these conclusions.
The reports also agree on one other point, that is, that
achieving these changes and improvements to the Bank System
requires comprehensive, not piecemeal, legislation. Each report
describes the interconnectedness of the various issues. For
GAO report also suggested that OFHEO could be merged
into the Finance Board, thereby making the combined regulator
responsible for all housing-related GSEs but independent of HUD.
4The

- 15 -

example, moving all savings associations from mandatory to
voluntary membership status must be done in conjunction with
reforming the System's capital structure and rules. Otherwise,
we risk a large exodus of mandatory members and possible
disruption of the REFCorp payment.
Mr. Chairman, with the release of the final mandated study
of the Bank System by HOD, the Treasury Department is working
with HOD and others in the Administration to develop such a
comprehensive reform package. As I have noted in my testimony,
we do not yet have a completed proposal. We expect to complete
our work by this Fall and present a legislative proposal by early
next year. Working with the committee, we look forward to the
passage of comprehensive Bank System reform legislation.

- 16 -

NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. -20220 - (202) 622-2960

For Release Upon Delivery
Expected at 10:00 a.m., E.S.T.
June 15, 1994
STATEMENT OF
LESLIE B. SAMUELS
ASSISTANT SECRETARY (TAX POLICY)
DEPARTMENT OF THE TREASURY
BEFORE THE
COMMITTEE ON FINANCE
UNITED STATES SENATE
Mr. Chairman and Members of the Committee:
I am pleased to present the views of the Treasury Department
on the Retirement Protection Act of 1993 (H.R. 3396). The
Treasury Department actively participated in the Administration's
PBGC Task Force and the Department strongly supports this
package. We believe that this legislation addresses the primary
causes of the recent trend of losses for the Pension Benefit
Guaranty Corporation (PBGC) and that enactment of the legislation
would reverse the trend of increasing PBGC deficits in a
responsible manner, before the situation becomes a crisis. This
morning I will discuss the portions of the bill that amend the
Internal Revenue Code.
Minimum funding requirements
The bulk of the amendments to the Internal Revenue Code in
this legislation relate to the minimum funding rules that are
found in section 412. These minimum funding rules are designed
to ensure that employers sponsoring defined benefit plans set
aside assets to secure the benefit promise made to their
employees. In recognition of the long-term nature of the
liabilities, the minimum funding rules permit employers to fund
their commitment over a number of years.
The minimum funding rules enacted as part of the Employee
Retirement Income Security Act of 1974 (ERISA) were amended in
1987. These amendments require an employer with over 100
employees that sponsors an underfunded plan to make an additional
deficit reduction contribution designed to eliminate the
underfunding more rapidly. In reviewing the effectiveness of

LB 889

these rules, the Administration's task force determined that some
employers with significantly underfunded plans had used loopholes
in the statute that allowed them to avoid making these additional
deficit reduction contributions.
The bill modifies the deficit reduction contribution
requirements in a number of ways in order to close the statutory
loopholes that employers have exploi~e~. First~ the bil~
.
improves the coordination of the deflclt reductlon contrlbutlon
and the regular minimum funding.determination~. U~der.cu:r7nt
law, the impact of actuarial galns and reductlons ln llablllty
due to changes in actuarial assumptions (or in the other
direction, the impact of actuarial losses and increases in
liability due to changes in actuarial assumptions) is recognized
twice in determining the deficit reduction contribution. The
bill would end this double counting and effectively require the
employer to make contributions based on the greater of the
regular minimum funding requirement and a free-standing deficit
reduction contribution.
Secondly, the bill mandates the use of certain standard
assumptions for purposes of determining the amount of a pension
plan's underfunding and the amount of the resulting deficit
reduction contribution. The 1987 rules required the use of an
interest rate within the corridor of 90-110% of the interest rate
on 30-year Treasury bonds (averaged over the past four years) for
this purpose. However, the 1987 rules did not require the use of
any particular mortality table for this purpose. As a result,
employers with poorly funded pension plans have had an incentive
to use interest rates at the high end of the permitted corridor
and to assume that their employees have higher than standard
mortality (i.e., lower life expectancy). The use of high
interest rates and mortality assumptions minimizes the amount of
the apparent pension liability, reducing the required
contributions.
The Retirement Protection Act would mandate that the
interest rate used for purposes of determining the deficit
reduction contribution be no greater than 100% of the 3D-year
Treasury rates (7.27% for plan years beginning in May 1994) and
would require the use of the group annuity mortality table
currently adopted by the insurance commissioners of at least 26
states. As the Members of this Committee know, this is the same
mortality table specified in Internal Revenue Code section
807(d) (5), relating to the determination of reserves for life
insurance companies.
The bill would also tighten the deficit reduction
contribution formula that determines the speed of funding new
plan liabilities under the 1987 amendments. The new formula
would require plans to fund substantially all of the increases in
liability in the first 5-7 years after the amendment. Under
2

current law, the liability can be funded at a rate that
corresponds to 12 year amortization. This change will ensure
that increases in liability from benefit changes will be funded
over a period that more closely tracks the five-year phase-in of
PBGC's guaranty.
Finally, in developing the proposal we attempted to
anticipate how employers might try to avoid making deficit
reduction contributions in the future, and then we closed these
potential loopholes in advance.
For example, the bill provides
that employers sponsoring significantly underfunded pension plans
(i.e., over $50 million of underfunding in the controlled group)
would be required to obtain advance Internal Revenue Service
approval of changes in actuarial assumptions that significantly
decrease their current liability. Thus, while these employers
will be permitted to reflect their individual situations in
establishing retirement age assumptions, for example, they would
need to justify to the I.R.S. any changes in those assumptions
from prior assumptions. This requirement, in conjunction with
the use of a specified mortality table and a lower cap on the
interest rate, will help ensure that employers cannot manipulate
the plan's actuarial assumptions to avoid their responsibility to
fund their benefit promises.
The Administration recognized that an abrupt increase in the
minimum funding requirements may be overly burdensome for
employers in the short term. Consequently, the bill includes
transition rules that give short-term relief to employers, while
still providing for steady, gradual improvement in plan funding.
Quarterly contributions and nondeductible contributions
As part of the process of reviewing the funding rules, the
task force identified two other related provisions that we
believed could be improved by narrowing the scope of their
application:
the quarterly contribution requirements and the
excise tax on nondeductible contributions.
I will discuss each
of these provisions in turn.
The requirement that an employer make quarterly
contributions to its pension plan (modeled on the payment of
estimated income tax) was added in 1987 and provides an early
warning signal for the PBGC that an employer may be unable to
meet the minimum funding requirements for a year.
In the absence
of the quarterly contribution requirement, such an employer could
wait until 20 1/2 months after the beginning of the plan year
before coming to grips with its financial responsibility to the
plan.
By requiring quarterly contributions, a~d notice to the
PBGC and plan participants of an employer's fa~lure to pay these
installments, the funding rules force the employer to face up to
its problems earlier in the year.
3

The quarterly contribution rules,also are bene~icial in the
situation where the employer's financlal problems flrst appear
later in the plan year. In this case, if the emplor er has been
making the required quarterly installment~ a plan wlll have,been
at least partially funded during the portlon of the year prlor to
the development of the financial problems.
On the other hand, the requirement that an employer
contribute four times a year, together with the need to have an
actuary determine the minimum installments, adds an
administrative burden for an employer. If a plan currently has
assets in excess of its current liability, the Task Force
concluded that the administrative burden on employers outweighs
the benefit of quarterly installments to the employees and the
Government. This is particularly true for plans near the full
funding limit, where an employer that must make a quarterly
contribution before the actuarial valuation is complete may
ultimately discover that the contribution is nondeductible. For
these reasons, the bill would eliminate the quarterly
contribution requirement for plans that had assets in excess of
current liability in the previous year.
The purpose of the excise tax on nondeductible contributions
is to discourage employers from making these contributions in
order to transfer assets into the plan's tax-exempt trust. In
the two situations described in the bill, we believe that the
employer's nondeductible contributions are not motivated by a
desire to obtain excessive tax shelter, but are primarily a
result of non-tax considerations, and should not generate an
excise tax. These situations arise where: 1) an employer with
100 or fewer employees contributes an amount to its pension plan
to fund the current liability and then terminates the plan, or 2)
an employer sponsoring a defined benefit plan also sponsors a
section 401(k) plan with overlapping coverage that is receiving
employee salary deferrals or employer matching contributions
totaling less than 6 % of compensation. In the former case, a
small employer may be required to make the nondeductible
contributions as a condition of plan termination. The latter
case deals with the anomalous situation where an employer wishes
to make additional contributions in order to decrease plan
underfunding, but is now discouraged from doing so because
employees are electing to make salary deferrals in a 401(k) plan
that count against the employer's aggregate qualified plan
deduction limits.
Actuarial equivalence
The bill makes minor changes to the actuarial equivalence
r~les,use~ for pu~pos~s of converting annuities to nonannuity
dlstrl~ut7ons, prlmarlly lump sums, under sections 417(e)
(rest~lctlons on cash-outs) and 41S(b) (maximum permitted
beneflts). Under current law, the actuarial equivalence that can
4

be used for these purposes is based on two different interest
rates (one of which is tied to the PBGC interest rates used to
value terminated plans, the other of which can be as low as 5%)
and no specified mortality table. The bill would specify a
single interest rate and mortality table for both purposes.
Eliminating the current cross-reference to the PBGC interest
rates will also enable the PBGC to adjust the interest rate it
uses for other purposes in the future without also affecting the
benefits of participants in all plans.
Nondiscrimination and Cross-testing
As a condition of tax-favored treatment, section 401(a) (4)
requires that retirement plans demonstrate that the contributions
or benefits provided under the plan do not discriminate in favor
of highly compensated employees. Under current law, this
demonstration can be on the basis of either contributions or
benefits, without regard to whether the plan is a defined
contribution plan or a defined benefit plan.
section 408 of the bill would generally prohibit the
practice known as "cross-testing" a qualified defined
contribution plan. The bill would generally require defined
contribution plans, and aggregations of defined contribution and
defined benefit plans, to demonstrate nondiscrimination on the
basis of actual plan contributions, as opposed to projected
benefits at retirement.
cross-testing a defined contribution plan is needed when
plans provide different allocations, as a percentage of
compensation, to different employees. If the employees receiving
larger allocations are older than the other employees, the
difference may be justified by looking at the equivalent benefits
those allocations are projected to generate. While some argue
that cross-tested defined contribution plans merely make explicit
the age-bias that is implicitly found in traditional defined
benefit plans, there are significant differences between these
types of plans. For example, the amount of benefit an employee
receives from a defined benefit plan does not depend on the
investment return in the fundi and the delivery of that benefit
is further guaranteed by the PBGC. However, employees in a
cross-tested defined contribution plan bear investment risk. An
employee will receive the hypothetical benefit that is used to
satisfy the nondiscrimination rules only if the plan's investment
return and the conversion of the employee's account balance into
retirement income actually match the assumptions used in the
projection.
creative practitioners have recently gone further than
merely mimicking the distributional aspects of defined benefit
plans by relating allocations to age. They have developed
aggressive plan designs that provide significantly higher
5

contributions for one class of employees (such as the owners of a
business) than for the rest of the employees. If most of the
favored class is older than the other employees, as is often the
case in these situations, cross-testing may be used to satisfy
the nondiscrimination rules in an inappropriate way.
The potential for highly-compensated employees receiving
sUbstantial benefits in cross-tested plans has received
considerable press attention. For example, discussions of crosstesting have made their way into the Wall street Journal, Pension
World and Financial Planning magazine. These articles emphasize
the potential for highly-compensated employees to maximize
benefits for themselves while minimizing contributions for rankand-file workers. For example, a June 1993 Financial Planning
article is headlined "Skewed retirement plans help owners at
workers' expense."
The Wall street Journal article leads with
the question "Is it a retirement plan , or a tax shelter?" An
article in the March 1994 Journal of the American society of CLU
and ChFC contains an illustration of an employer using crosstesting to reduce the allocations for rank-and-file workers from
15% of pay to 3% of pay, while the owner continues to receive an
allocation of $30,000. I have attached copies of a small
collection of these articles for the record.
The Administration is concerned that such practices and the
increasing attention that they have been receiving, can
• reduce the share of tax-subsidized retirement funds that
benefit rank-and-file workers
• encourage employers to abandon the defined benefit
system, thus eroding the PBGC premium base
• discourage the hiring of older rank-and-file workers (to
the extent that the Age Discriminiation in Employment Act
doesn't protect these workers), and
• generally have a detrimental impact on the public's
perception of the integrity of our tax-favored retirement
system.
For these reasons, the Administration continues to support
restricting cross-testing.
Let me emphasize that this proposal was developed because
some employers are manipulating the cross-testing rules in order
to obtain a tax subsidy for retirement plans that provide
excessive contributions to highly compensated employees, at the
expense of rank-and-file workers. Since the Administration
proposed limiting cross-testing, we have heard from and met with
a number of interested groups. The purpose of our meetings with
these representatives has been to identify the types of plans
6

that provide meaningful benefits to rank-and-file workers, in
contrast to the abusive cases. We have received some useful
suggestions in this regard.
We hope that we can work with the committee in tailoring the
proposal to target the troublesome cases.
In this process,
however, our guiding principle remains -- the abusive practices
must stop.
Rounding rules for indexed values
Many of the statutory dollar thresholds and limits used in
the qualified plan area are indexed to changes in the cost of
living.
For example, the annual limit on contributions under
section 401(k) is $9,240 in 1994 (increased from $8,994 in 1993).
The bill would change the indexing rules so that the indexed
values for a year are available before the start of the year and
would provide for rounding of these indexed values to the next
lowest multiple of $500 or $5,000.
The earlier determination of
the indexed values and the use of rounded values would simplify
administration by employers and communication with employees,
because the indexed values would not necessarily change each
year. The proposal also has the effect of raising revenue to
offset some costs of the bill. As the Members of the Committee
know, a similar rounding rule was adopted in last year's
reconciliation bill for the compensation limit of section
401(a) (17).
Conclusion
In conclusion, I would like to emphasize that now is the
time to act, while the PBGC's problems are still manageable.
Although the PBGC has assumed significant liabilities over the
past ten years from the termination of underfunded plans, PBGC's
responsibility for benefit payments under those plans is spread
out over a number of years.
Enactment of the Retirement
Protection Act of 1993 will require employers sponsoring defined
benefit plans to do a better job of living up to their
commitments by adequately funding their plans, thereby reducing
PBGC's potential liability.

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: Journal Article

Number of Pages Removed: 10

Author(s): Edward F. Londergan and Paul Vickers, ChFC, FLMI
Title:

"New Comparability": Increased Flexibility for Profit Sharing Plans?

Date:

1994-03-01

Journal:

Journal of the American Society of CLU and ChFC

Volume:
Page(s):
URL:

Federal Reserve Bank of St. Louis

https://fraser.stlouisfed.org

DEPARTMENT

THE

TREASURY

~/78~9:.. . . . . . . . . . . ..

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

OFFICE OF PUBliC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
Text as prepared for delivery
June 15, 1994

Remarks of Treasury Secretary Lloyd Bentsen
Eisenhower World Affairs Institute Awards Ceremony

LB-890

FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
June 15, 1994

REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
EISENHOWER AWARDS DINNER

I want to thank the Trustees of the Eisenhower World Affairs Institute and
Gettysburg College for this honor.
Don mentioned I've been at this public service business for a few years now. I've
always been guided by just one principle -- make a difference, make lives better. It is
truly moving for me to be honored in so public a way for doing what I considered to be
the right thing to do, the moral thing to do. Thank you.
I'm also honored because if you notice it's the first time anyone who didn't wear a
general's stars has received this honor. I was just a major on active duty, so I'm glad to
see you're both dipping down into the ranks and going out to the civilian world this year.
I don't keep a lot of photographs on my wall at the office, those grip and grin
pictures I think they call them, but I do have a few. What I have are pictures of most of
the presidents I've had the privilege to serve with. I may be a Democrat, but I have Ike
up on the wall too.
Every picture has its story, so let me tell you about this one.
In 1951 I was over in Europe on an important mission. It wasn't trade, and it
wasn't the Cold War, but it was important for the country. You see, I went to talk to Ike
about running for president. Well, I had lunch with Eisenhower at Versailles, and B.A
had lunch with Tony Biddle while I was talking with Ike.

LB-890

(MORE)

I made my case, explained why I thought he'd make a good president, how he
should take advantage of his popularity, how his ability to manage something as complex
as D-Day was exactly the kind of talent we needed at the White House. I also told him
he ought to be running as a Democrat. I pressed him and I pressed him, made the best
case I could, but Ike was noncommittal. I can remember it to this day. He had a slight
grin when I was plugging the presidency.
Well, I walked out and told B.A. that I won half the argument. He's running, but
not as a Democrat.
Later on, after he was in the White House, I asked him one evening why he'd
chosen to fight for the nomination, to take on Taft when he could have had the
Democratic nomination for the asking. What he said to me has stuck to this day. He
told me that if he fought for the nomination on his own, he would not feel as obligated
as he would if he'd just walked in and had it given to him by the Democratic
Convention. That tells you a lot about the man, the kind of spirit and willingness to take
a risk that epitomizes Dwight Eisenhower.
I came back a week ago from our D-Day ceremonies over in England and France.
If you look at D-Day as something more than a successful military exercise, it becomes
clear that it's a historic turning point in the history of our nation. That's what I want to
talk about, what else it represents, and how the lessons of that apply even more so today.
The United States went into this war with an economy making its way out of
depression. Large portions of our industrial capacity lay idle. Unemployment in 1939
was over 17 percent. In 1940, it wasn't much better. In 1939, our Navy was just 235
ships. Our Army Air Force bought 800 aircraft m that year.
June 1944. What was different? We faced a challenge. It took the unity that
comes from war to make one of the most significant economic transitions ever.
Everyone pulled together -- every family, every farm and every factory.
In a very real sense, on June 6, 1944, the United States in a single act became a
superpower. And it was the power of the U.S. economy that made it possible. From
having nearly one in five unemployed and factories idle, we were producing a ship a day,
250 planes a day. We had 1.5 million soldier~ in England -- one person in 30 in Great
Britain was an American. We had tens of thousands of tanks, and trucks, and planes,
ships and assault craft ready to strike.
Ten years after "brother can you spare a dime?" the course of our history -- and
world history -- had changed.

And ever since, despite whatever point we or anyone else has been in the business
cycle, one thing has been clear -- we are an economic superpower. And let me tell you,
if you think you can be a military and political superpower without also being an
economic superpower, you just take a look at Russia. It may have taken 45 years for the
economics of this to play out, but it was as much the strength and attractiveness of our
economy, our free enterprise system that rewards risk, as it was our military and political
clout, that brought the Cold War to an end.
That was one era when it took economic strength to prevail, and to grow -because it is growth that allows you to sustain your strength. I know Ike understood that.
I went back and started rereading his speeches, and there are economic themes there
that are just as true today -- perhaps even more so. Such as the importance of trade to
link increasingly interdependent economies in the world, and the contribution to peace
that prosperity can make.
I was struck by two thoughts, and if I might, I'd like to read them.
When Ike was sworn in, in his first inaugural address, he said, "No free people can
long cling to any privilege or enjoy any safety in economic solitude. For all our own
material might, even we need markets in the world for the surpluses of our farms and
factories. Equally, we need for these same farms and factories vital materials and
products of distant lands. This basic law of interdependence, so manifest in the
commerce of peace, applies with thousand-fold intensity in the event of war."
Clearly, Dwight Eisenhower knew the critical importance of opening markets to
sustain economic growth. Let me quote just one more line: "Recognizing economic
health as an indispensable basis of military strength and the free world's peace, we shall
strive to foster everywhere, and to practice ourselves, policies that encourage productivity
and profitable trade. For the impoverishment of any single people in the world means
danger to the well-being of all other peoples."
What was true in Ike's day about the need for economic strength is even more
constant today. Is it important now to have a strong military? Of course. The same is
true with political clout. But we still must have that third leg of the equation -economic leadership -- to be a true superpower, for the first two can exist with certainty
only in the presence of the third.
Maintaining our economic leadership will hinge on our ability to change and
adapt. That is our challenge, and that is our responsibility. To fail to adapt is to fall
behmd, to cede leadership to those more clever, more willing to take risks.
We have made the commitment to change that will provide the foundation for
U.S. economic leadership for the coming decades. I want to discuss that with you just
briefly.

No nation can be a leader abroad unless it is on stable footing at home. We have
ensured that. I am not going to go into chapter and verse, just the highlights.
I haven't seen the fundamentals of our economy look this good in 20 years. We
are on the way to freeing up $500 billion in investment capital with our deficit reduction.
In fact, the deficit is coming down faster than we anticipated. Business investment is
rising -- eight straight quarters at double-digit rates. Interest rates are reasonable.
Inflation is not a threat. The economy is on sound footing, growing steadily.
Doing that has produced enormous political capital for us abroad. That's the first
step.
The second thing we've done to adapt is recognize the critical importance in
international affairs of economic matters. The role prosperity can play in peace and in
extending the benefits we have enjoyed to others demands that we look as much at our
economic relations abroad as it does at our political relations abroad.
I'll be at the G-7 summit in Naples next month. The Treasury Secretary is now a
regular participant in summits, and that's as it should be.
Third, we recognize that the nature of our economy is changing, and we must
adapt. Years ago, it used to be that when there were layoffs, the people were called
back to work when the economy picked up. That isn't always the case now. The
structure of our economy is changing. Jobs are disappearing to technology. Some have
gone overseas. Corporate America has downsized, probably permanently. There's
outsourcing, more service-oriented jobs. You can look at all these changes as a loss, or
as an opportunity. I chose to see it as an opportunity for us to seize and exploit.
What it takes is continuous education, re-training, a recognition that new skills are
necessary for a new era. I'm a fellow who grew up doing long division with a pencil and
a scrap of paper. I have a computer on my desk now. I have one at home. And I use
them. They're not window dressing. Advances in technology must be mastered and
harnessed, and that takes education -- all the time. Education is a lifetime undertaking.
We made that point at the G-7 jobs conference in Detroit earlier this year.
Change, adapt, learn to be more efficient and more productive. That's what we're
after. Job-training, a better, more efficient infrastructure, taking the kinks out of the
economy, all of them innovative ways to help maintain our global economic leadership.

Finally, we are using the power of the marketplace -- the open marketplace -- to
strengthen both our economy and those of others. We gain two-fold from that. We
increase our standard of living. And as we strengthen economies elsewhere, we
encourage greater political and economic freedoms, and respect for human dignity. It is
no accident that most of the world's strongest economies are democracies, and that they
are at peace. If you recall those lines I mentioned earlier, Ike truly understood the
power of prosperity as a force for peace -- and we do too.
We are aggressively pursuing greater trade opportunities -- from the Framework
talks with Japan, to the North American Free Trade Agreement, and the Uruguay
Round of the GAIT. And beyond that, we have turned to the organization known as
APEC -- the Asia-Pacific Economic Cooperation forum -- because of the opportunity it
holds for contributing to global economic integration. There's exploding growth there,
and the potential of that region of the world is tremendous -- 2 billion people who want
our products, $1 trillion in infrastructure work over the next decade.
In addition, after nearly a half century of an adversarial relationship, we're leading
the way in assisting the transformation of the once command economies of communism
into the free market system. And in this 50th anniversary year of the Bretton Woods
institutions, I am proud to say we're meeting our commitments. These banks are so
critical to encouraging the kind of growth in the developing world that offers the
opportunity for prosperity to others.
Finally, as we move into this new economic era, we are working closely with our
allies in the industrialized world to coordinate policies that are now beginning to restore
growth in these economies.
Fifty years ago, the allied forces and Dwight Eisenhower -- backed by the power
of the American economy -- forever changed the course of history. Today, we must
again harness and direct our economic strength to be certain that in the coming years we
improve the American standard of living, retain our position of leadership, and offer the
opportunity of prosperity to others. That is our challenge. That is our responsibility.
And that is what we are doing.
Again, thank you very much for the honor you have given me this evening. Like
Ike, there are two things I love -- my family, and my country.
Thank you.
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OFFICE OF PUBUC AFFAIRS • 1500 PENNSYL

, D.C,. 20220 • (202) 622-2960

FOR RELEASE AT 2:30 P.M.
June IS, 1994

CONTACT:

Office of Financing
202/219-3350

TREASURY TO AUCTION 2-YEAR AND 5-YEAR NOTES
TOTALING $28,000 MILLION
The Treasury will auction $17,000 million of 2-year notes
and $11,000 million of 5-year notes to refund $23,273 million of
publicly-held securities maturing June 30, 1994, and to raise
about $4,725 million new cash.
In addition to the public holdings, Federal Reserve Banks
hold $3,192 million of the maturing securities for their own
accounts, which may be r~funded by issuing additional amounts
of the new securities.
,

The maturing securities held by the public include $817
million held by Federal Reserve Banks as agents for foreign
and international monetary authorities. Amounts bid for these
accounts by Federal Reserve Banks will be added to the offering.
Both the 2-year and 5-year note auctions will be conducted
in the single-price auction format. All competitive and noncompetitive awards will be at the highest yield of accepted
competitive tenders.
Tenders will be received at Federal Reserve Banks and
and at the Bureau of the Public Debt, Washington, D. C.
This offering of Treasury securiti~s is governed by the 'terms
and conditions set forth in the Uniform Offering Circular (31 CFR
Part 356) for the sale and issue by the Treasury to the public of
marketable Treasury bills, notes, and bonds.
Branche~

Details about each of the new securities are given in the
attached offering highlights.
000

Attachment

LB-891

HIGHLIGHTS OF TREASURY OFFERINGS TO THE PUBLIC OF
2-YEAR AND 5-YEAR NOTES TO BE ISSUED JUNE 30, 1994
June IS,
Offering Amount
Description of Offering:
Term and type of security
series
CUSIP number
Auction date
Issue date
Dated date
Maturity date
Interest rate
Yield .
Interest payment dates.
Minimum bid amount
Multiples .
Accrued interest
payable by investor
Premium or discount

1994

$17,000 million

$11,000 million

2-year notes
AH-1996
912827 Q3 9
June 21, 1994
June 30, 1994
June 30, 1994
June 30, 1996
Determined based on the
highest accepted bid
Determined at auction,
December 31 and June 30

5-year notes
P-1999
912827 Q4 7
June 22, 1994
June 30,1994
June 30, 1994
June 30, 1999
Determined based on the
highest accepted bid
Determined at auction
December 31 and June 30

$5,000
$1,000

$1,000
$1,000

None
Determined at auction

The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Accepted in full up to $5,000,000 at the highest accepted yield
(1) Must be expressed as a yield with two decimals, e.g., 7.10%
Competitive bids
(2) Net long position for each bidder must be reported when the
sum of the total bid amount, at all yields, and the net long
position is $2 billion or greater.
(3) Net long position must be determined as of one half-hour prior
to the closing time for receipt of competitive tenders.
Maximum Recognized Bid
35% of public offering
at a Single Yield
35% of public offering
Maximum Award .
Receipt of Tenders:
Prior to 12:00 noon Eastern Daylight Saving time on auction day
Noncompetitive tenders
Prior to 1:00 p.m. Eastern Daylight Saving time on auction day
competitive tenders
Full payment with tender or by charge to a funds account at a
Payment Terms
Federal Reserve Bank on issue date

DEPARTMENT

THE

TREASURY

·",N·, E.WS
1.'

" ' ,

OFFICE OF PUBUCAFFAIRS -1500 PENNSYLVANIAAVENUE"~,1W•• WASHINGTON~D.C.- 20220. (202) 622-2960
. .1:1

FOR IMMEDIATE RELEASE
June 15, 1994

. ; 'd ~.:

, L~

b ,)

CONTACT: Jon Murchinson
(202) 622-2960

BENTSEN TO ATTEND OVERSIGHT BOARD MEETING

Treasury Secretary Lloyd Bentsen will attend the Thrift Depositor Protection
Oversight Board open meeting on Thursday, June 16. The meeting will be held at 3 p.m. at
the Federal Deposit Insurance Corporation, 550 17th Street NW, sixth floor.
The Oversight Board reviews overall strategies, policies and goals of the Resolution
Trust Corporation (RTC) and approves RTC financial plans, budgets and periodic financing
requests prior to implementation.
The Board's members include the Secretary of the Treasury, who serves as chairman;
the Chairman of the Federal Reserve Board; the Chief Executive Officer of the RTC; the
Chairman of the FDIC; the Director of the Office of Thrift Supervision, and two independent
members from the private sector.

-30-

LB-892

DEPARTMENT

THE

TREASURY

_ -_____~". 1!GN E W S
OmCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C. - 20220 - (202) 622-2960

FOR IM:MEDIATE RELEASE
June 16, 1994

Contact: Hamilton Dix
(202) 622-2960

BENTSEN SAYS U.S. TO HEAD ANTI-MONEY LAUNDERING EFFORT
Treasury Secretary Lloyd Bentsen announced Thursday that the United States was
elected to chair the Financial Action Task Force (FATF) on Money Laundering for the year
beginning July 1, 1995. Bentsen said he has asked Ronald K. Noble, assistant secretary of the
Treasury for enforcement, to serve as president of the organization.
"The best way to hit criminals where it hurts is to hit them in the wallet, and an
extensive program of international cooperation, especially through this task force, can do just
that, Bentsen said. This organization is the most effective voice on this issue. I'm pleased
that the United States has been chosen to lead the group next year.
"Money laundering is more than a law enforcement problem. Money laundering is of
major concern to the Department of the Treasury and the other finance ministries because of
its potential to corrupt and destabilize individual financial institutions and the financial system
generally. II
Noble, who heads the U. S. delegation to FATF, will succeed Leo Verwoerd of the
Netherlands Ministry of Finance. The United States was chosen as the next leader of FATF
at a meeting Thursday in Paris.
U.S. policy, as carried out by the departments of Treasury, State and Justice through
FATF, is to create a global network of nations committed to moving against money launderers
by strengthening anti-money laundering laws and increasing cooperative efforts to deny
havens to money launderers.
The FATF Thursday also issued its final report for the 1993-1994 session in which
members agreed to continue the work of this task force through 1999. The organization will
concentrate on three major areas of drug and non-drug money laundering -- studying methods
and countermeasures, evaluating the effectiveness of the anti-laundering measures of member
nations and encouraging non-member nations to act against money laundering.
(more)
LB-893

The FA TF was created at the G-7 Economic Summit in 1989 to improve international
cooperation against money laundering. It is composed of 26 fmancial center countries, the
European Union and the Gulf Cooperation Council.
The Financial Action Task Force has worked for the last five years to bring about
worldwide action against money laundering. Among its major accomplislunents was the
issuance of 40 recommendations for domestic and international anti-money laundering
measures for law enforcement, financial institutions and their supervisors.
Key recommendations include: suggesting that money laundering be criminalized, that
financial institutions be required to report suspicious activity, and enhancing formal and
informal international cooperation at all stages of money laundering cases. Each participant in
FA TF has agreed to implement the recommendations and have their progress evaluated by
other task force members.

-30-

TREASURY·

N<EWS

OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960

FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
June 16, 1994
REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
AMERICAN REHABILITATION ASSOCIATION
BALTIMORE, MARYLAND
Thank you, David Daugherty, for the nice words, and thanks especially for your
support. We can use it.
I'll tell you when I first learned the importance of rehabilitation: during World
War II.
I was reminded of that earlier this month. I was with the President at the 50th
anniversary of D-Day. What a moving experience.
I came out of the war with no injuries, knock on wood. But some very successful
Americans -- like Senator Inouye, Senator Dole -- wouldn't be where they are today, had
it not been for rehabilitation.
I've seen your numbers. You help return 350,000 people to work each year. You
speed recovery of stroke patients.
You treat victims disabled by gunshots and knife wounds. I'm not here to plug
the crime bill, but we need that passed, too. Many of those injuries don't have to
bappen in the first place.
When you give people their lives' back, you also move them from tax users to
taxpayers. As Treasury Secretary, I like that -- a lot.
They showed me the numbers you came up with. Rehabilitated people returning
to work represent a savings of $1-2 billion, which otherwise would be paid by Medicaid
and disability insurance. And you estimate that they make a significant contribution to
our tax base -- about $700 million.
LB-894

-2-

But there's one serious problem with your services. They're not available to every
American. That's what health care reform is all about.
We want to work on a bi-partisan basis to guarantee private coverage.
No one is arguing with that goal.
Noone is arguing about the need for insurance reform.
No one is arguing about portability, so people with pre-existing conditions can
change jobs. There is no way to get a bill through that doesn't address these issues, not
when an estimated 81 million Americans have pre-existing health conditions.
No one is arguing about open enrollments, so consumers can change insurers. I
wouldn't want to be a member of Congress and have to tell my constituents: "I have it,
but you can't."
No one is arguing about helping smaller companies to pool risks, or the need to
make it possible for them to afford coverage.
We agree on much more than we disagree on. Even on the sticky issue -financing -- there's a surprising amount of agreement.
For example, it's generally believed financing will be accomplished by slowing the
rate of growth in both public and private health care spending, and adding new
revenues, such as a tobacco tax.
One of the debates on the Hill now concerns phasing things in. Of course you
phase things in. In your profession, you wouldn't take a 20-year old who breaks his back
in a car accident and have him running a marathon the day he gets his body cast off and
is out of traction.
This is no different. From the beginning -- from day one -- this President has had
a phase-in plan. To phase in guaranteed coverage by 1998, and to have a fully
operational program by the year 2004.
He's not married to those exact dates. If that doesn't work for a majority of
lawmakers, we change the wedding date - but let's not wait too long.
Having been in the Senate, having seen how these things work, I know there are
adjustments to all legislation. Congress isn't changing one-seventh of our economy
without being careful on this one.
But I see them picking up speed.

-3-

Two House subcommittees have reported out their health reform bills. The full
House, Ways, and Means Committee hopes to complete action by July 4th, and I'll be
visiting with Chairman Gibbons on this.

In the Senate, Chairman Kennedy, of Labor and Human Resources, reported out
his bill. In myoId venue, Finance, the President, the Vice President, and I met with
Chairman Moynihan and Senator Packwood on Tuesday.
They're not ready to take a vote. There isn't a bi-partisan majority for any plan -yet. There are many good ideas out there, and I have full confidence we will work this
out. It's amazing what committees can accomplish with the influence of an election four
months away!
As Finance Chairman, I never expected to get comprehensive health care through
the Senate. Without the strong leadership of a President, those types of cbanges just
aren't possible. We had to move forward when and where we could.

For example, one year, we extended Medicaid to make prenatal care available to
first-time pregnant mothers in low-income families; another year we let states have the
option to expand coverage; other years, we extended Medicaid to children whose family
incomes were low enough.
We helped millions of kids, and we saved some money.
I've seen numbers -- for every $1 spent in pre-natal care, we save $3.38 in the first
year of a child's life.
By the way, I've seen your rehabilitation numbers. You estimate that for each
dollar spent on rehabilitation, $30 is saved. As with pre-natal care, the earlier it begins,
the better the results. You know better than I that stroke patients who receive
rehabilitation are more likely to be discharged to home care, than a nursing home.
But from all our efforts in the Senate, we didn't fix problems with the overall
system -- not when Children's Medical Center of Dallas has $47 million a year in
uncompensated care. And the children's hospital I visited in Salt Lake City has $17
million. And the one I visited last month in Phoenix has $7 million.
Or go to an emergency room in Houston, and you'll see we didn't help every
child. Kids come in there with serious illnesses because their parents have no insurance
and they never took them to a doctor.

In the 1980s, Congress and three presidents worked to contain costs in Medicare
and Medicaid, only to find tightening these payments caused doctors and hospitals to
increase rates for others.

-4-

It's called cost shifting, and businesses and families pay for that.
Last year, the New York Assembly enacted reforms to reduce the average cost of
insurance for workers in small firms. So what happened? Young healthy New Yorkers
with bargain-priced insurance saw their premiums increase dramatically; and today, the
number of insured is down.
Those are the problems with legislating on a piecemeal basis like we've been
doing.
Look -- the easiest thing to do is to invent a program, the harder thing is to pass
it in Congress, but the hardest of all is to make it work after it's been enacted.
Ask Lawton Chiles of Florida. When he was a Senator, he'd say to reform health
care it was necessary first to control the cost of providing care.
Then he became a Governor, restructured Florida's health care system, saw the
results, and the Governor now says to control costs we first have to achieve universal
coverage.
He's right. What this President is offering is a phased-in approach. But with a
difference. At the end of the road is a guarantee of private insurance for every
American.
Say we didn't have guaranteed coverage. Say all we do is change some insurance
rules so those with pre-existing conditions are covered. You know what would happen?
It would push people out of the system because they'd see a dramatic rise in costs.
And who would pay their costs when they become sick? The taxpayer. You and I
would, because we have insurance.
Say we didn't have guaranteed coverage. Say all we do is slap entitlement caps
on Medicare and Medicaid. You know what would happen? Costs to businesses
providing insurance would rise because by cutting Medicare and Medicaid payment rates,
we'~e. just cost sbffting. We're just making insurance more expensive for employers and
familIes and forcmg them to reduce or drop their coverage altogether.
Let me give you some numbers.
One dollar in six of federal spending is for health care. It could rise to one in
five by the year 2000 if we do nothing.

-5-

We're spending 14 percent of our GDP on health care. Japan and Germany are
under 10 percent. H we do nothing, we'll be at almost 20 percent by the end of the
decade, and no one else will be over 10 percent. And the really troubling part is that
every one of those countries paying less than us covers all of their citizens, and we have
38 million without insurance.
Somebody told me: "Mr. Secretary, you're always quoting GDP. Mr. and Mrs.
Taxpayer don't see how GDP affects them."
So let me put it this way: if our percent of GDP spent on health care had stayed
flat .• if it was the same percent as it was 20 years ago .• the average American would be
seeing $1,000 more per year in cash wages. $1,000 more in the pocket.
In recent years, health care costs have risen two-and·a-half times faster than the
average consumer product. In 1984, if I paid $100 for a basket of groceries and $100 for
health insurance, today the same groceries cost me $140 and the same health insurance
costs me about $200.

Let me tell you the Treasury Secretary's bottom line. This bill will be paid for.
It's not going to add to our deficit. It will drive it down, or it won't pass.
Earlier this year, I was having dinner at the White House with Senator Dole.
And he said what we need is an incremental approach -- the Bentsen plan.
I sponsored a bill, which passed the Senate twice, to make improvements insofar
as insurance, portability, covering pre-existing conditions, adding preventive care, and
improving employer incentives.
And the Vice President was there, and he said, no Senator, what we need is the
Nixon plan, which was much more sweeping than mine and included an employer
contribution.
Do you know which President said we needed to pass health care reform because
we face a "massive crisis" since costs were up 170 percent in 10 years? Do you know
which President said that we need to mandate that employers provide basic health
insurance coverage?
A fellow named Richard Nixon. He said that my very first year in the Senate.

1971.
In 1971, we had a war going on. We were just coming out of a recession. We
had a President who wasn't working fulltime on health care.

-6-

I don't remember him going out, and giving speeches, and holding town halls, and
visiting hospitals, and receiving one million letters from Americans with health care
stories -- like this President has.
This President, this First Lady, want nothing more than to pass health reform this

year.
We have a strong economy now. We have businesses and labor behind us.
You've added your support. You deserve a tremendous amount of credit for your
willingness to step in.
We have the best shot that we've had in many years.
Do me a favor -- go out and sell the idea to your congressmen and senators, will
you?
Thank you very much.
-30-

D E P :\. R T \. E N T

'tREASURY

0 F

THE

T R E .\ S t R \'

NEWS

omCE OF PUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
June 16, 1994

BENTSEN SEES HEALTII CARE PlAN ADVANCING
BALTIMORE -- Treasury Secretary lloyd Bentsen said Thursday that health care
reform legislation is picking up steam on Capitol Hill.
"Having been in the Senate, having seen how these things work, I know there are
adjustments to all legislation," Bentsen said in remarks prepartd for delivery to the
American Rehabilitation Association, a non-profit educational organization.
"Congress isn't changing one-seventh of our economy without being careful on this
one. But I see them picking up speed," said Bentsen, a former chairman of the Senate
Finance Committee.
Commenting on recent House and Senate committee action on health reform
legislation. Bentsen said: "They're not ready to take a vote. There isn't a bipartisan
majority for any plan -- yet." Still, "there are many good ideas out there, and I have full
confidence we will work this out," he said.
I .

The Secretary said the administration wants to work on a bi-partisan basis to
guarantee private health insurance coverage for "No one is arguing with that goal. No
one is arguing about the need for insurance reform. N,) one is arguing about portability,
so people with pre-existing conditions can change jobs. There is no way to get a bill
through that doesn't address these issues -- not when an estimated 81 million Americans
have pre-existing health conditions."
In fact, Bentsen said lawmakers and the administration agree on much more than
they disagree on, including how the legislation would be phased in.

President Clinton, he said, has always wanted to gradually put any reforms in
place. "From the beginning this President has had a phase-in plan. To phase in
guaranteed coverage by 1998, and to have a fully operational program by the year 2004,"
the Secretary said. ''The President is not married to those exact dates. If that doesn't
LB-89S

-2-

work for a majority of lawmakers, we change the wedding date -- but let's not wait too
long," he added.
Bentsen thanked the rehabilitation association for its endorsement of health care
reform. "You deserve a tremendous amount of credit for your willingness to step in," he
told the some 500 people attending a conference sponsored by the group.
-30-

DEPARTMENT

THE

TREASURY

NEWS

'IREASURY
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVJffllJ!. •.

tJ.'Y':. WASHI~"TpN. D.C. - 20220. (202) 622-2960
•

FOR IMMEDIATE RELEASE
June 16. 1994

; L.

( ,,J

CONTACT: Jon Murchinson
(202) 622-2960

AGREEMENT REACHED WITH CONSUMER GROUPS ON INTERSTATE BANKING

The Treasury Department and the Office of the Comptroller of the Currency, in
consultation with Congress and representatives of the banking industry, reached agreement
Thursday with consumer groups regarding the application of state laws to national bank
branches.
"The agreement on the applicable law provisions of interstate banking and branching
legislation is a significant and very positive step toward producing a landmark banking bill
for the President's signature," Treasury Secretary Lloyd Bentsen said. "This agreement.
which fully incorporates and protects the primary concerns of the Administration and
consumers, reflects the Administration's focused. deliberate and incremental approach to
banking legislation that I articulated last year. "
This was an important issue that needed to be resolved in order for Senate and House
conferees to produce a conference report on interstate banking and branching.
-moreLB-896

-2-

Under the agreement. state laws concerning community reinvestment, consumer
protection. fair lending and the establishment of intrastate branches would generally apply to
hranches of national banks as they apply to branches of state banks. But state laws would
not apply when preempted by Federal law or if the Comptroller of the Currency (OCC)
determines that they discriminate against national banks.
The agreement also establishes a new public notice and comment process for when
GCC is considering whether Federal law preempts state laws. The process would also apply
to

determinations on whether state laws discriminate against national banks. This agreement

explicitly preserves judicially established principles of Federal preemption and the
preemption authority of the Comptroller.
"The starting point for the Administration on this issue has consistently been the
preservation of traditional preemption analysis and specifically that state law would apply
unless preempted by Federal law." said Bentsen. "The notice and comment mechanism
created by this agreement gives consumers and other interested parties an appropriate
opportunity to weigh in when the regulators are considering these issues. "
"I appreciate the efforts of the consumer groups we have worked with in reaching this
agreement: Consumers Union. Consumer Federation of America, Public Citizen. and U.S.
Public Interest Research Group."

-30-

,NEWS
OFFICE OF PUBUCAFFAIRS -1500 PENNSYLVANIAAVENUB;.Jh1.W.... :WAsHLNG

(be. - 20220 - (202) 622-2960

FOR IMMEDIATE RELEASE
Text as prepared for delivery
June 17, 1994
REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
FREE TRADE ALliANCE/CITY OF SAN ANTONIO
SAN ANTONIO, TEXAS

Good morning. It's good to be back in Texas. I want to thank the Free Trade
Alliance and Mayor Nelson Wolff for organizing today's event and bringing together so
many friends from both sides of the border.
This is an important day throughout the border region, and for San Antonio in
particular. We fought hard to get NAFfA, and the people of San Antonio made an
important contribution, showed Washington why it was important. And I was proud to
be an advocate of locating the bank here. NAFTA and the North American
Development Bank are going to be good for San Antonio, good for Texas, and good for
the United States and Mexico.
We're starting a process here today that will make lives better from Brownsville
and Matamoros to Ciudad Juarez and EI Paso, on to San Diego and Tijuana.
I'm delighted to be here with my friend and counterpart, Pedro Aspe, to help
launch the NADBank. This institution will finance environmental infrastructure projects
along the border and support community adjustment and investment to further the
purposes of NAFfA
And what makes this even more significant is that we're embarking on a
partnership -- a partnership to clean up the environment along our shared border,
particularly in the areas of wastewater treatment, drinking water, and municipal solid
waste.
There are three partnerships at work here, separately and together. The first is
the partnership between the governments of the United States and Mexico, the
NADBank and the Border Environment Cooperation Commission, and communities on
each side of the border to build the projects that will clean up our environment.
LB-897

The second is the partnership between the bank and the City of San Antonio,
which has so graciously provided a home for the bank.
And the third is the partnership between the public and private sectors.
Together, in partnership, our efforts to clean up the border will provide
opportunities and challenges to businesses in both our countries. Environmental
infrastructure projects will require engineers, environmental specialists, a wide range of
suppliers and financial institutions, just to name a few.
In addition, I envision a marriage of private lending and equity with government
funds to hold down government costs and encourage private sector involvement. The
NADBank is uniquely suited to help generate private sector financing through the use of
partial guarantees. One of the important aspects of both the Commission and the Bank
is that they are designed to use the creativity and ingenuity of the private sector.
I'd like to urge the private sector to work closely with communities and states on
both sides of the border to develop these important projects.
Working together, we can get a very tough job done -- cleaning up the border so
that people on both sides can lead more health, productive lives.
Thank you.
-30-

TREASURY

NEWS

OFFICE OF PUBliC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

FOR IMMEDIA1E RELEASE
June 17, 1994

BENTSEN SAYS NADBANK TO HELP CLEAN BORDER ENVIRONMENT

SAN ANTONIO, Texas -- Treasury Secretary lloyd Bentsen said Friday the
North American Development Bank (NADBank) will make "an important contribution"
to cleaning up environmental problems in states and communities along the U.S.-Mexico
border.
Bentsen, speaking on the occasion of the first board meeting of the bank which
was created in the legislation enacting the North American Free Trade Agreement, also
said the NADBank is an innovative experiment in the area of international financial
institutions. "Our agreement offers a new model for international cooperation at the local
level to solve the problems that both our nations share," he said.
''The bank will be able to make an important contribution to solving these
problems, but it cannot do it all, II he said, adding that government grants, state and local
sources, other development banks and the private sector also must become involved in
helping states and communities address the three environmental areas with which the
bank will involve itself.
The NADBank has a potentia11ending capacity of up to about $3 billion based on
capital contributions from both the United States and Mexico. Bentsen noted that some
estimates of the need for wastewater treatment, drinking water improvement, and
municipal solid waste treatment range as high as $8 billion.
The NADBank, with three board members each from the United States and
Mexico, will be headquartered in San Antonio. The United States and Mexico will each
provide $225 million in capital over a four-year period. Some 90 percent of the
NADBank's lending will be directed at environmental projects that have been approved
by a local-oriented Border Environment Cooperation Commission (BECC). The
remaining 10 percent of the lending capacity will be used to support community
adjustment and investment related to NAFTA The BECC is located in Ciudad Juarez,
Mexico.
LB-898

DEPARTMENT

THE

TREASURY

. . . . . . . . . . . . . .~~1782~. . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .

OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
Text as prepared for delivery
June 17, 1994

Remarks of Treasury Secretary Lloyd Bentsen
Amarillo, Texas

LB-899

FOR IMMEDIATE RELEASE
Text as prepared for delivery
June 17, 1994
REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
BILL SARPALIUS DINNER

AMARILW, TEXAS
Thank you, Bill. It's great to be back in Texas. And it's great to see so many
friends.
There are two things the last election made clear -- Americans wanted the budget
deficit fixed and they wanted more jobs created.
We're delivering on both of those, and in a big way. And it's beginning to be felt
all over the country.
First, we're on our way to removing $500 billion out of the federal deficit over
five years. We're still running in the red, but nowhere near what it might have been. I
used to say during the 1988 campaign that I could make everyone feel good if I could
write $200 billion in hot checks every year. When I got to Treasury 16 months ago I
found it was nearer $300 billion.
We're bringing the deficit down now. It was close. We won by just one vote, but
it's made a significant difference in our economic health. We're really turned the
economy around.
I want you to know insofar as reducing the deficit is concerned that so far this
year we're running ahead of what we projected for the year. It looks like we're going to
make even more headway than we anticipated. I'm the fellow who has to write the
checks, and that's good news to me. It's good news to the American economy, too,
because it's that much more money which is available for investment in the kinds of
things that make ours the most productive economy around.
This year is going to be the first time since Harry Truman was president that
we've had three straight years of declining deficits.

I've been going around lately saying it's a great time to be Treasury Secretary.
Every time I see one of these good numbers I'm encouraged.
Look at some of the newest ones. Productivity is up. Business investment is up
eight straight quarters in double digits. Earlier this week we got word that inflation for
the first five months of the year was running at just 2.3 percent. Someone said that we
haven't had inflation that low, except for one year, going back to 1965.
The Fed has bumped short-term interest rates back up a little bit. They see it as
a pre-emptive strike on inflation. But if you look at what interest rates have been
historically, we're in pretty good shape. I remember back when the prime was 19
percent and inflation was 13 percent. You can't do much business with rates like that.
Rising rates make you worry if they threaten to curb investment, but to this point
we haven't seen that happen.
Growth in the economy is coming along steadily. We had 7 percent back at the
end of last year, and 3 percent in the first quarter. My counterparts in Europe, or in
Japan, would be delighted to have numbers like that.
I said that our other priority has been to create the conditions that allow our
economy to create jobs.
We see all the headlines about this huge corporation or that huge corporation
laying off, downsizing. And of course we see the market pick up at bad news, or go
down when we have good news like growth. H I understood the markets, I'd been
phoning in this speech from my yacht. But when we see these headlines, you don't see
the ones about the welder being added here, or the engineer there, or the computer
expert at another business. It's been adding up.
In fact, our economy has created nearly 3.5 million jobs. By the 14th month of
this administration the economy had created more jobs than in the entire four years of
the previous administration. Eight thousand jobs are being created in this country each
and every day.
The unemployment rate is down nationally to 6 percent. Things are doing better
than that around here. They tell me that unemployment was 4 percent in April, and that
there are about 5,500 more jobs in Amarillo now than there were a year ago.
There's one bit of job news that seems to get lost these days. There are 100,000
less employees on the federal payroll now than there were in 1992. I said that at a
meeting the other day and a voice called out from the back of the room, "Praise the
Lord."

We're going to bring that figure down by another quarter of a million by 1998.
I'm feeling it at Treasury. There are 6,000 fewer authorized positions in Treasury now
than there were a year ago. Next year that figure will be 8,200 fewer.
Making our domestic economy strong is just the first step. We have to look down
the road, realize that our economy and the world's economies are changing. We have to
be ready to adapt, because that's the way we're going to maintain our leadership
internationally.
We're doing that in a number of ways -- by realizing that education is a lifetime
proposition. And by looking outside our borders for opportunities for American
businesses.
Bill helped us out with NAFfA last fall, and that's a great one for Texas. I was
in San Antonio today at the first meeting of the board of our new North American
Development Bank. That's going to help out with environmental work along the border
as part of NAFfA
I was in business for 16 years. Built a good one in Houston. You realize quickly
in business that you have to have markets. That's what NAFfA is all about. Finding
those markets, and making sure they are open, is one of our top priorities.
We just started talking again with the Japanese about opening their markets. I
saw some figures the other day that would amaze you about those Japanese markets, and
how closed they are in relation to the rest of the world.

In the United States, 18 percent of the assets, 16 percent of sales, and almost 11
percent of our employment are attributable to investments in our country from abroad.
That's because we're committed to open markets. But if you look at Japan, under 1
percent of the assets in Japan are in foreign-owned firms, just 1.2 percent of the sales
come from that, and just 0.5 percent of the jobs are attributable to outside investment.
That's why we're working to show Japan why it's in their interest to open up their
markets.
We're also reaching out through the General Agreement on Tariffs and Trade, or
the GATT as they call it. The most recent round of negotiations-- the Uruguay Round -is over and we're waiting to have it ratified up on Capitol Hill.

It makes tremendous strides in bringing down trade barriers. We've been at this
seven years and it's a question of leadership. I have finance ministers from around the
world calling me up asking when are we going to ratify the agreement. I think we'll get
it done soon, but our budget rules do require that we find about $12 billion in budget
cuts and revenue replacements. Even though in the long run we're going to take in more
because of the higher economic activity, the rules require that we replace any revenue
we lose from bringing down our tariffs. We're going to do that because this treaty is so
important to helping us sustain our growth and tap into global growth.

We also have to think about what will happen if we don't have GATT -- how
tariffs on our goods will stay high overseas and what that will do to our exports.
I don't want to make this evening a night of economic statistics. But there more
quick points I want to make. One about the strength of this nation and its economy,
and the other about making a difference and about leadership.
I was over at the D-Day events in England and France two weeks ago. It was
very impressive. In just one day this nation made its mark on the world as a superpower.
It was the strength of our economy that took us from 17 percent unemployment and idle
capacity in 1939, to the point that we could launch that impressive invasion and start
liberating Europe. It was every family, every farm, and every factory, pulling together
that made it happen. That's what kind of a nation this is. We're strong. We're risk
takers. We can meet change, and make it work for us.
Those events also made me think about the kind of people we are, and about
people who make a contribution.
I had to give a speech at a cemetery in Cambridge, England, and most of the
graves were of airmen who helped liberate France and take apart the German war
machine. A couple of days later I was at Normandy, and at that huge cemetery at
Colleville.
At those cemeteries there were row after row after row of crosses, and Stars of
David, and names of missing in long rows, and I noticed that a great many of them were
Texans. That was a time when regular guys, folks from towns like Amarillo, and
Lubbock, and Wichita Falls, went to war. People like Earl Rudder who led the Rangers
up the cliffs at Point du Hoc. And people whose names are known only to their families,
because their contribution did not draw as much attention.
I couldn't help but be impressed at what they accomplished. One of the reasons
they succeeded was, as I mentioned, the strength of our economy. But the other reason
was because we are a people of values, people who recognize that public service -whether it's on the battlefield or in public office -- is an important undertaking.

Let me close by telling you that we've accomplished a great deal in Washington in
the past 16 months, putting the economy back on track, restoring America's place of
leadership in the world, opening markets.
Thank you.

-30-

DEPARTMENT

THE

TREASURY

NEWS

TREASURY

omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220'.'(202f.fi;2-~960
".

I,'

FOR RELEASE AT 2:30 P.M.
June 17, 1994

CONTACT:

•

Office.J,o'f 'FinanciQ:,g5' /
202/219-3350

TREASURY'S 52-WEEK BILL OFFERING
The Treasury will auction approximately $16,500 million
of 52-week Treasury bills to be lssued June 30, 1394.
This
offering will provide about $1,150 million of new cash for the
Treasury, as the maturing 52-week bill is currently outstanding
in the amount of $15,340 million,
In addition to ~he maturing
52-week bills, there are $26,260 million of maturing 13-week and
26-week bills.
Federal Reserve Banks hold 510,403 million of bills for
their own accounts in the three maturing issues,
These may be
refunded at the weighted average discount rate of accepted competitive tenders.
Federal Reserve Banks hold $~,S69 ~illion of the three
maturing issues as agents for foreign and international monetary
authorities,
These may be refunded within the offering amounc
at the weighted average discount rate of accepted competitive
tenders.
Additional amounts may be issued for such accounts if
the aggregate amount of new bids exceeds the aggregate amount
of maturing bills.
For purposes of determining such additional
amounts, foreign and international monetary authorities are considered to hold $390 million of the maturlng 52-week issue.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of :he Public
Debt, Washington, D. C.
This offering of Treasury securit1es
:s governed by the terms and conditions set forth in the C~ifQrn
Offering Circular (31 CFR J?art 356) for the sa:e and issue by the
Treasury to the public of marketable Treasury bills, notes, 30d
bor:.ds.
Details about the new security are given 1n the attached
offering highlights.
000

Attachment

LB-900

(

HIGHLIGHTS OF TREASURY OFFERING OF 52-WEEK BILLS
TO BE ISSUED JUNE 30, 1994

June 17, 1994
Offering Amount . . . . .

$16,500 million

Description of Offering:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Maturing amount . . .
Minimum bid amount
Multiples . .

364-day bill
912794 S8 8
June 23, 1994
June 30, 1994
June 29, 1995
June 30, 1994
$15,340 million
$10,000
$1,000

Submission of Bids:
Noncompetitive bids

Competitive bids

( 1)
(2)

(3 )

Accepted in full up to $1,000,000
at the average discount rate of
accepted competitive bids.
Must be expressed as a discount rate
with two decimals, e.g., 7.10~.
Net long position for each bidder
must be reported when the sum of the
total bid amount, at all discount
rates, and the net long position are
$2 billion or greater.
Net long position must be reported
one half-hour prior to the closing
time for receipt of competitive bids.

Maximum Recognized Bid
at a Single Yield

35~

Maximum Award . . .

35% of public offering

Receipt of Tenders:
Noncompetitive tenders

Competitive tenders . .
Payment Terms

of public offering

Prior to 12:00 noon Eastern Daylight
Saving time on auction day.
Prior to 1:00 p.m. Eastern Daylight
Saving time on auction day.
Full payment with tender or by charge
to a funds account at a Federal
Reserve bank on issue date.

UBLIC DEBT NEWS
Department of the Treasury •

Bureau of the Public Debt • Washington, DC 20239

FOR IMMEDIATE RELEASE
June 20, 1994

CONTACT: Office of Financing
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $12,147 million of 13-week bills to be issued
June 23, 1994 and to mature September 22, 1994 were
accepted today (CUSIP: 912794L77).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average

Discount
Rate
4.16%
4.18%
4.18%

Investment
Rate
4.26%
4.28%
4.28%

Price
98.948
98.943
98.943

$1,400,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 40%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS

Received
$55,431,010

Accepted
$12,146,794

$50,371,017
1.274.435
$51,645,452

$7,086,801
1.274.435
$8,361,236

3,123,510

662,048
$55,431,010

662.048
$12,146,794

Type

Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS

An additional $471,952 thousand of bills will be
issued to foreign official institutions for new cash.

LB-901

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

FOR IMMEDIATE RELEASE
June 20, 1994

CONTACT: Office of Financing
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $12,117 million of 26-week bills to be issued
June 23, 1994 and to mature December 22, 1994 were
accepted today (CUSIP: 912794P57).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average

Discount
Rate
4.53%
4.56%
4.55%

Investment
Rate
4.70%
4.73%
4.72%

Price
97.710
97.695
97.700

Tenders at the high discount rate were allotted 24%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS

Received
$45,547,910

Accepted
$12,116,834

$40,265,050
1.056,908
$41,321,958

$6,833,974
1,056.908
$7,890,882

3,050,000

1,175,952
$45,547,910

1.175,952
$12,116,834

Type

Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS

An additional $838,148 thousand of bills will be
issued to foreign official institutions for new cash.

LB-902

NEWS

lREASURY

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622-2960

June 20, 1994

Monthly Release of U.S. Reserve Assets

The Treasury Department today released U.S. reserve assets data for the month of
May 1994.
As indicated in this table, U.S. reserve assets amounted to $74,420 million at the end
of May 1994, down from $76,565 million in April 1994.

Gold
Stock 1/

Special
Drawing
Rights 113/

Foreign
Currencies
4/

Reserve
Position in
IMF2/

76,565

11,053

9,440

44,173

11,899

74,420

11,052

9,522

42,005

11,841

Total
Reserve
Assets

April
May

End
of
Month

1994

1/
1/

Valued at $42.2222 per fine troy ounce.
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.

Includes allocations of SDRs by the IMF plus transactions in SDRs.

Valued at current market exchange rates.
~

DEPARTMENT

lREASURY

THE

TREASURY

NEWS

OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

FOR RELEASE AT 2:30 P.M_
June 21, 1994

CONTACT:

Office of Financing
202/219-3350

TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $22,000 million, to be issued June 30,
1994. This offering will result in a paydown for the ~reasury of
about $4,250 million, as the maturing 13-week and 26-week bills
are outstanding in the amount of $26,260 million.
In addition to
the maturing 13-week and 26-week bills, 'there are $15,340 million
of maturing 52-week bills.
The disposition of this latter amount
was announced last week.
Federal Reserve Banks hold $10,403 million of bills for
their own accounts in the three maturing issues. These may be
refunded at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $4,544 million of the three
maturing issues as agents for foreign and international monetary
authorities.
These may be refunded within the offering amount
at the weighted average discount rate of accepted competitive
tenders.
Additional amounts may be issued for such accounts if
the aggregate amount of new bids exceeds the aggregate amount
of maturing bills.
For purposes of determining such additional
amounts, foreign and international monetary authorities are
considered to hold $4,154 million of the original 13-week and
26-week issues.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C. This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of the new securities are given in the
attached offering highlights.
000

Attachment

LB-904

HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED JUNE 30, 1994

June 21,
Offering Amount

1994

$11,000 million

91-day bill
912794 N4 2
June 27, 1994
June 30, 1994
September 29, 1994
March 31, 1994
$13,266 million
$10,000
$ 1,000

1B2-day bill
912794 P6 5
June 27, 1994
June 30, 1994
December 29, 1994
June 30, 1994

Description of Offering:

Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Currently outstanding
Minimum bid amount
Multiples

$10,000
$ 1,000

The following rules apply to all securities mentioned above:

Submission of Bids:
Noncompetitive bids
Competitive bids

Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids.
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.

Maximum Recognized Bid
at a Single Yield

35% of public offering

Maximum Award .

35% of public offering

ReceiDt of Tenders:
Noncompetitive tenders
Competitive tenders
Pavmen.t Terms

Prior to 12:00 noon Eastern Daylight Saving time
on auction day
Prior to 1:00 p.m. Eastern Daylight Saving time
on auction day
Full payment with tender or by charge to a funds
a t a Federal Reserve Bank on issue date

account

UBLIC DEBT NEWS
Dt:partmcnt of the Treasury • Bureau of the Public Debt • Washington, DC 20239

FOR IMMEDIATE RELEASE
June 21, 1994

CONTACT: Office of Financing
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 2-YEAR NOTES
Tenders for $17,007 million of 2-year notes, Series AH-1996,
to be issued June 30, 1994 and to mature June 30, 1996
were accepted today (CUSIP: 912827Q39).
The interest rate on the notes will be 6%. All
competitive tenders at yields lower than 6.04% were accepted in
full. Tenders at 6.04% were allotted 43%. All noncompetitive and
sucessful competitive bidders were allotted securities at the yield
of 6.04%, with an equivalent price of 99.926. The median yield
was 6.01%; that is, 50% of the amount of accepted competitive bids
were tendered at or below that yield. The low yield was 5.97%;
that is, 5% of the amount of accepted competitive bids were
tendered at or below that yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS

Received
$44,868,970

Accepted
$17,006,817

The $17,007 million of accepted tenders includes $1,438
million of noncompetitive tenders and $15,569 million of
competitive tenders from the public.
In addition, $1,088 million of
high yield to Federal Reserve Banks
international monetary authorities.
of tenders was also accepted at the
Reserve Banks for their own account
securities.

LB-905

tenders was awarded at the
as agents for foreign and
An additional $1,650 million
high yield from Federal
in exchange for maturing

STATISTICAL SUMMARY
Series EE and HH U. S. Savings Bonds
Month of May 1994

May
1994

ISSUES, REDEMPTIONS AND
OUTSTANDING

May
1993

(In millions of dollars)
Sales:

Series EE

$ 725

$ 787

Accrued Discount (Interest
earned and added to Amount
Outstanding) Series E & EE

719

723

Redemptions (Including
Accrued Discount)
All Series

759

627

Cash Adjustments from Series
HH Savings Bonds Exchanges

(I)

Amount Outstanding
Net Change (+l/{-)*

684

Total Outstanding

1994

Series E & EE
Series H & HH

(3)
880
1993

$165,254
11,313

$154,693
10,980

$176,567

$165,673

000

'··'Monthly

Treasury Statement

L.., ~ ~ ~: j

of Receipts and Outlays
of the United States Government
For Fiscal Year 1994 Through May 31, 1994, and Other Periods

Highlight

The eight-month cumulative deficit through May 31 for Fiscal Year 1994 is $165.3 billion compared
to a cumulative deficit of $212.3 billion for the comparable period in Fiscal Year 1993.

RECEIPTS, OUTLAYS, AND SURPLUS/DEFICIT
THROUGH MAY 1994

1000

Contents
Summary, page 2

800

I
L

600

Receipts, page 6
Outlays, page 7

L
I

Means of financing, page 20

400

Receipts/outlays by month, page 26

0
N
S

Federal trust funds/securities, page 28

200

Receipts by source/outlays by
function, page 29

Explanatory notes, page 30

-200
Compiled and Published by

Department of the Treasury

Financial Management Service

Introduction
of receipts are. treated as deductions from gross receipts; revolving and Ill&'\agemen! fund receipts. reimbursements and refunds of monies previously exJ)eOde(j In
treated as deductions from gross outlays; and interest on the PUblic debt !POOle
ISSueS) is recognized on the accrual baSIS. Major informalton sources IlcI..cle
accounting data reported by Federal entities. disbursing officers. and F8derI
Reserve banks.

The MOf1rhly Treasury Srarement 01 Receipts and Outlays 01 the United States
Government (Mrs) IS prepared by the FinanCial Management Service. Department of
lhe Treasury. and after approval by the Fiscal Assistant Secretary of the Treasury. is
normally releasad on the 15th workday of the month following the reporting month.
The publication IS basad on data provided by Federal entities. disbursing officers.
and Federal Reserve banks

Triad of Publications
The MTS is part of a triad of Treasury financial reports The Daily TfBiSu'y
Statement is publiShed each working day of the Federal Government. It prOvides
data on the cash and debt operations of the Treasury based upon reporting of It'e
Treasury account balancas by Federal Reserve banks. The MTS is a report 01
Government receipts and outlays. based on agency reporting. The U.S. GoVEIIImirII
Annual Report is the official publication of the detailed receipts and outlays of It'e
Government. It is published annually in accordance with legiSlative mandates giv9n
to the Secretary of the Treasury.

Audience
The Mrs IS published to meet the needs of: Those responsible for or interested
In the cash poSition of the Treasury; Those who are responsible for or interested in
the Government s budget results; and IndiViduals and businesses whose operations
depend upon or are related to the Government's financial operations.

Disclosure Statement
ThiS statement summarizes the financial activities of the Federal Government
and off-budget Federal entities conducted in accordance with the Budget of the U.S.
Government. i.e receipts and outlays of funds. the surplus or deficit. and the means
of finanCing the deficit or disposing of the surplus. Infonmation is presented on a
modified cash basis receipts are accounted for on the basiS of collections; refunds

Data Sources and Information
The Explanatory Notes section 01 this publication provides information ~
Ing the flow of data into the MTS and sourCleS of infonmatiOn relevant to the MTS

Table 1. Summary of Receipts, Outlays, and the DeficitiSurplus of the U.S. Government, Fiscal Years 1993 and 1994
~Moo~

[$ millions]
Period

FY 1993
October
November
December
January
February
March
April
May
June
July
August
September
Year-to-Oate ...........................

Receipts

Outlays

Deficit/Surplus (-)

76.829
74.629
113.686
112.716
65.979
83.288
132.017
70.642
128.570
80.630
86.737
127.504

125.620
107.355
152.633
82.899
'114.477
127.263
'124.200
107.605
117.47t
120.207
109,815
118.939

48,792
32.726
38.947
-29,817
48,496
43.974
-7.817
36.963
-t1.099
39,577
23,078
-8.565

21,153,226

'1,408,484

'255,258

78.668
83.107
125.408
122.966
72.874
93.108
141.326
83.546

124.090
121,488
133,660
107.716
114,440
125,423
123,872
115,600

45.422
38.381
8.252
-15.248
41.566
32,315
-17,454
32,054

801,002

966,291

165,289

FY 1994
October
November
December
January
February
March
April
May
Year-to-Date .................... _......

'Outlays lor the Postal Sernce have been Increased In February 1993 by $301 million and In
Apnl '993 by $274 mill"", to recoro money orders IssU90. prevIOUsly reported as oHseltJ
rece<pts ana to record outlays p<eVlOUsly reported as a deposit lund; respecttvely.
ng

'The receipt. outlay and deficit figures differ from the FY 1995 Budget. released Ilyttte I)ifI>

of Management and Budget on February 7. 1994. by $589 million due mainly to re'llSlQrl5' 022
loIlowlng the release of the Final Sapternbel' Monthly Treasury Statement.

Table 2. Summary of Budget and Off-Budget Results and Financing of the U.S. Government, May 1994 and
Other Periods
[$ millions]

Total on-budget and off-budget results:
Total receipts ..........

Total outlays .........

729.785

1.353.815

55.366
28.179

579.840
221.162

912.892
336.179

524.785
205.000

998.594
355.221

115.600

966.291

1.483.829

942.052

1.518.945

89.728
25.871

781.931
184.360

1.202.953
280.876

766,420
175.632

1.223.582
295.364

-32.054

-165.289

-234.758

-212.266

-165.130

-34.362
+2,308

-202,091
+36,802

-290,061
+55.303

-241.635
+29,369

-224.987
+59,857

32.054

165,289

234,758

212.266

165.130

27.649
21,537
-17,132

146.337
25,312
-6,360

225.234
12.506
-2,982

177.852
38,489
-4,074

173,715

Total on-budget and off-budget financing
\-leans of financing:
Borrowing from the public .. .................... , ...
Reduction of operating cash. increase (-)
By other means ............................

Budget
Estimates
Next Fiscal
Year (1995)'

1,249,071

...........

On-budget surplus (+) or deficit (-) ..........
Off-budget surplus (+) or deficit (-) ....

Prior
Fiscal Year
10 Date
(1993)

801,002

.. , ........

Total surplus (+) or deficit (-)

Budget
Estimates
Full Fiscal
Vear'

83,546

On-budget receipts
Off -budget receipts

On-budget outlays
Off -budget outlays

Current
Fiscal
Year to Date

This
Month

Classification

... No Transactions.
Note: Details may not add to totBls due to rounding.

'These figures are based on the FY 1995 Budget. released by the Office of Management and
on February 7. 1994

~udget

:igure 1. Monthly Receipts, Outlays, and Budget Deficit/Surplus ot the U.S. Government, Fiscal Years 1993 and 1994

$ billions
Outlays

.....

•

. .~~#'

','

Receipts

Oefictt(-)/Surplus

Oct.
FY
93

Dec.

Feb.

Apr.

Jun.

Aug.

Oct.
FY

Dec.

Feb.

Apr. May

-8,585

Figure 2, Monthly Receipts of the U.S. Govemment, by Source, Fiscal Years 1993 and 1994

$ billions

ITotal Receipts

Dec.

Feb.

Apr.

Jun.

Aug.

FY
93

Figure 3.

Oct.

Dec.

Feb.

Apr. May

Monthly Outlays of the U.S. Govemment, by Function, Fiscal Years 1993 and 1994

$ billions
Total Outlays

Apr,

Jun.

Aug.

Oct.

94
4

Dec.

Feb.

Apr.May

Table 3. Summary of Receipts and Outlays of the U.S. Government, May 1994 and Other Periods
[$ millions}
Classification

This Month

Current
Fiscal
Year to Date

Comparable
Prior Period

Budget
Estimates
Full Fiscal Year'

Budget Receipts
Individual income taxes
:;orporation income taxes
................ ..
Social insurance taxes and contributions:
Employment taxes and contributions (off·budget) ..... .
Employment taxes and contributions (on·budget) .......... .
.. .............. .
Unemployment insurance ........
Other retirement contributions
............... .
::xcise taxes .......... .
:ostate and gift taxes ......... ..
~ustoms duties
........... ..
lIliscelianeous receipts ............ .

24.384
2,817

346,109
77,092

320.659
63,424

549.901
130.719

28.179
7,570
10.426
364
5.253
1,342
1,620
1,5B9

221,162
60,939
21,OB9
3,068
34,948
10,603
12,769
13,224

205,000
55,690
19,323
3,173
30.598
B,534
11,925
11,460

336.179
93,974
27,041
4.729
54.550
12,749
19,198
20,031

Total Receipts ................................................ .

83,546

801,002

129,785

1,249,071

(On·budget) ................................................. .

55,366

579,840

524,785

912,892

(Off·budget) ................................................ .

28,179

221,162

205,000

336,179

188
224

4,908
173
18,530
2,507
2,243
1.15B

1,751
1,715
142
8,B38
43,497
1,977
175,209
20,073
15,316
11,39B

1,613
1,667
134
9,250
47.636
1,815
185,920
19,508
20,564
10,777

2,755
2,872
193
11,383
64,931
3,234
267,484
30,980
28,738
17,206

22,993
26,518
2,04B
448
836
2.679
320
2,903

203,022
205,001
17,391
4,375
6,645
26,173
3,664
23,944

184,872
194,597
16,411
4,216
6,997
30,194
3,803
21,315

316,615
314,663
25,535
7,240
10,817
37,111
5.785
36.687

23,943
666
1,645
439
417
1,110
3.012
70

187,110
11,194
23,969
3,702
-82
6,699
25,273
414

186,590
7,929
23,301
3,778
265
24,113
581

298,505
10,763
37,919
6,539
1,04B
14,183
38,101
604

~udget

Outlays

.egislative 6ranch
~e Judiciary
:xecutive Office of the President ............ .. .............. ..
:unds Appropriated to the President ..... .
Jepartment of Agriculture ....... .. ............. ..
Jepartment of Commerce ...... . ................ .
Jepartment of Defense-Military ................ .
Jepartment of Defense-Civil .. .. .................. .
Jepartment of Education ...... ............................. . ..
)epartment of Energy .............................. ..
)epartment of Health and Human Services, except Social
Security ........................................................ .
'epartment of Health and Human Services, Social Security
)epartment of Housing and Urban Development
)epartment of the Interior .... .. .. . . .. .. . .. .. .. .. . .. ... . ....
)epartment of Justice ......... .. .........
lepartment of Labor
'epartment of State ......... ..
'epartment of Transportation
lepartment of the Treasury:
Interest on the Public Debt
Other ................................ .
'epartment of Veterans Affairs ....... .
nvironmental Protection Agency
, ........ , .. . ........... .
,enera! Services Administration .................. .
ationai Aeronautics and Space Administration
ffice of Personnel Management
..
mall Business Administration .... . ............ .
ther independent agencies:
Resolution Trust Corporation .. '
Other
................... .
ndistributed offsetting receipts:
Interest ............................................. ..
Other ....
.. ............................... ..

1,777
1,555

2,678
4,185

-14,332
2 7,432

3,555
11,617

-5.467
-3,032

-48.463
-22,721

-46,128
-22,218

-85,845
-37,389

Total outlays ................................................. ..

115,600

966,291

942,052

1,483,829

(On'budget) ...................................... , .......... .

89,728

781,931

766,420

1,202,953

16
772

9,452

25,871

184,360

175,632

280,876

or deficit (-) .................................. ..

-32,054

-165,289

-212,266

-234,758

(On·budget) ................................................. .

-34,362

-202,091

-241,635

-290,061

(Off'budget) ................................................ .

+2,308

+36,802

+29,369

+55,303

(Off· budget) ................................................ .
Surplus

(+1

'Outlays for the Postal Service have been increased in February 1993 by $301 million and in
April 1993 by $274 million to record money orders issued. previously reported as offsetting
receipts, and to record ouflays previously reported as a deposit fund: respectively.
Nole: Details may not add to tOlals due to rounding.

'These figures are based on the FY 1995 Budget. released by the Office of Management and
dget on February 7, 1994.

Table 4. Receipts of the U.S. Government, May 1994 and Other Periods
[$ millions)

Current Fiscal Year to Date

This Month
Classification

IndivldulIl income taxes:
Withheld
PreSidential Election Campaign Fund
Other

Gross
Receipts

I (Deduct)
Refunds I Receipts

Gross
Receipts

I (Deduct)
Refunds

\R
. t
ecelp s

Gross
Receipts

Refunds
(Deduct)

IR~

289,119
21
100,731

310,954
53
105,443

35.706
12
5,359

to DI1t

Prior Fiscal Year

Total-Individual income taxes .........................

41.076

16,692

24.384

416,449

70,340

346,109

389.872

69,213

320,151

Corporation income taxes ....................................

3.847

1,030

2,817

86,811

9,719

77,092

73,742

10,318

83;42.

24,344
1,108

24.344
1,108

188,025
11,780
-45

176,032
9,134
-12

(' ')

(")
(")

188.025
11.780
-45

(")

( )

25,452

199.761

199,761

185,154

185,1~

2,608
119

20,143
1,258

20,143
1.258

18,871
976

-1

Social insurance taxes and contributions:
Employment taxes and contnbutlons:
Federal old·age and survivors Ins. trust fund:
Federal Insurance Contnbutions Act taxes
Self·Employment Contributions Act taxes
Deposits by States
Other
Total-FOASI trust fund
Federal disability Insurance trust fund:
Federal Insurance Contributions Act taxes
Self-Employment Contributions Act taxes
Receipts trom railroad retirement account .
Deposits by States
Other
Total-FDI trust fund
Federal hospital insurance trust fund:
Federal Insurance Contributions Act taxes
Selt-Employment Contnbulions Act taxes
Receipts from Railroad Retrrement Board
Deposits by States
Total-FHI trust fund
Railroad retirement accounts:
Rail Industry pension fund
Railroad Social Security equivalent benefit

2,727

21.401

19,846

6,864
350

6.864
350

54.281
3,911

54,281
3,911

49,972
3.020

49,972
3,020

7.214

58,192

(

)

-3

58.192

52,990

229
132

224
132

1,560
1,215

1,532
1,215

1,516
1,191

1,509
1,191

35,749

282,129

282.100

260,698

260,600

8,435
1,970
3
18

16,738
4,366
21
32

16,738
4,298
21
32

14,868
4,401
58
77

14,868
4,319
58
77

10.426

21,158

21,089

19,405

19,323

357
8

3.004
64

3,004
64

3,109
63

3,109

364

3.068

3,068

3,173

8,435
1.981
3
18

Total-Unemployment Insurance

10,437

Totat-Social insurance taxes and
contributions
...............................

r ')

Total-Other retirement contributions.

(")

2,727

35)53

Other retrrement contributions:
Federal employees retirement - employee
contnbutlons
Contnbutlons for non-federal employees

(' ')

Unemployment Insurance·
State taxes deposited in Treasury
Federal Unemployment Tax Act taxes
Railroad unemployment taxes
Railroad debt repayment

Total-Employment taxes and contributions

..)

(

176,032
9,134
-12

46,554

46,540

306.355

306,257

283,275

283,115

3.616
482
1,168
53

3,550
482
1,168
53

20,632
3,278
11,469
408

489
24
327

17,417
1,484
11,813
421

358
10
170

17,059
1.414
11,643
421

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

20,144
3,254
11,142
408

5,319

5,253

35,787

840

34,948

31,136

538

3O,sil

Estate and gift texes ........................................ ,

1,372

1,342

10,853

250

10,603

8,744

210

8,531

1,620

13,319

551

12,769

12,429

503

11,925

Excise taxes:
Miscellaneous excise taxes'
Airport and airway trust fund
Highway trust fund
Black lung disability trust fund
Total-Excise taxes

Customs duties

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

Miscellaneous Receipts:
Deposits of eamlngs by Federal Reserve banks
All other
Total -

Miscellaneous receipts ........................

1,684

1,325
266

1,325
264

10,624
2,413

10,824
2,400

9,289
2,324

154

9,289
2,171

1,591

1,589

13,237

13,224

11,614

154

11,-

-:=

Total -

Receipts ........................................

101,443

17,898

83,546

882,812

81,810

801,002

810,811

81,025

129,lM

Total -

On·budget

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

73,264

17,898

55,366

661,651

81,810

579,840

605,810

81,025

524,7&5

Total -

Off·budget ..

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

28,179

221,162

205,000

, Includes amOunts tor the wmdfall profits ta;.: pursuant to P L 96-223

(. 0) Less than $500.000.
Note: Details may not add to totals due to rounding.

No Transacttons

-=
=

205141

Table 5. Outlays of the U.S. Government, May 1994 and Other Periods
[$ millions)
This Month

Current Fiscal Year to Date

Classification
Gross \APPlicable\ Outlays
Outlays Receipls
Legislative Branch:

Gross jAPPlicable
Outlays Receipts

r +)

281

503

6
2

15
28

14
28

51
14
133
370

-9
9
38

2
3

2
3
-1

Senate ,,,""''''''
House of Representatives "
Joint items
' .. , , , .. , , .
Congressional Budget Office
Architect of the Capitol .", .. '
Library of Congress ,',"","
Government Printing Office:
Revolving fund (net) """
General fund appropriations
General Accounting Office " ..
United States Tax Court
Other Legislative Branch agencies "'."",",.
Proprietary receipts from the public " " " " " " " "
Intrabudgetary transactions "'''''' ...... , .. ,,,,,, .. ,,,,,, .. ,

(' +)

Total-Legislative Branch ............................... .

191

31
63
289

22
21
2

(+ +)

-7

188

1,172

Outlays

Prior Fiscal Year to Date

Gross jAPPlicable
Outlays Receipts

280
491

306

516

14
128
370

15
151

Outla s
Y

305
508
52
15
145

217

31
63
289
22
21
-2
-7

-27
70
297
22

1,751

1,632

-5
-8

1,613

-8

The Judiciary:
Supreme Court of the United States ""'"''''''''''''''''
Courts of Appeals, District Courts. and other judiCial
seNices ."" .. " .. '" ",., '" ... " .. ' ""'"''''''''''''
Other " ... ,,, .. ,,,,,,,,,,,., "''''''''''''''''''''''''''''''

212
12

211
12

1.624
77

1,622
77

1,594
57

Total-The JudiCiary .............. , , .................... ,

225

224

1,717

1,715

1,667

16
(' +j

1,594
57

1,667

Executive Office of the President:
Compensation of the President and the White House
"'fice ''''''''''''''''''''''''''''''''''''''''',''''''''''''''
Office of Management and Budget
" ..... " " . ", " " ..
Other '" .. '''"..
" " " ...... " ... " . "

Total-Executive Office of the President

27
38

36
70

142

134

80
177

214

177

3,362

141

2.335
14

3.362
2.335
14

7
2

42
19

533
3,424
2,474
-4
21

409

6.372

27
36
70

134

Funds Appropriated to the President:
International Security Assistance:
Guaranty reseNe fund '''''''''',..
. " , " " " .. , , " . ,
Foreign military financing grants .. "",, .......... " .... ..
EconomiC support fund ....
.. " ... " . "
Military assistance
" .. , ......... " ..
Peacekeeping Operations ..
.. .. " .. " .. " .. "
Other "".""".,.""" .... " " .. ".,, ' ..... " ...
Proprietary receipts from the public '"
, ' , , .. ' , . , , , . ,

118

600

Total-Intemational Security Assistance ..

446

International Development Assistance:
Multilateral Assistance:
Contribution to the International Del/elopment
Association " ... ,,", ...... ,,', .... " ..... ,,"
International organi~ations and programs ' ... '
Other .... , ....... ' ................... ",' .. " ...

5
26

150
67

347

Total-Multilateral Assistance """"'",.,
Agency for International Development:
Functional development assistance program , ...... , .. .
Sub-Saharan Africa development assistance
Operating expenses " " " ........ " .. " .. " ..
Payment to the Foreign Service retirement and
.. ............... " .... " " "
disability fund ..
................ , ............... .
Other .... , .... ,
Proprietary receipts from the public
' , , , ' , , , , .. .
Intrabudgetary transactions ........................... ..
Total-Agency for International Development
Peace Corps ........... .. .................. ,,'
Overseas Private Investment Corporation ... ""."
Other ... "......
.. ....................... ..
Total-International Development Assistance
International Monetary Programs .',., .. " .. " ... , ....
Military Sales Programs:
Special defense acquisition fund
Foreign military sales trust fund
Kuwait civil reconstruction trust fund
' , , , .. , .... , ,
Proprietary receipts from the public ".
Other '''' ............................................... .

Ital-Funds Appropriated to the President ......... ..

386

6,472

637

127

562
222

306

127
306

335

1,070

1.070

1.118

1,118

925

430

455

347

895
455
315

44
455

418

502

-502

44
496

-1

-2

265

2,241

543

1,698

2,083

151

-43
7

136
28
61

409

136
-124
-348

129

46
4

415

137

278

3,535

1,104

118
8,822

-1

18
4

34
12
1.129

1,129
(H)

r .)
1,095

-1,095

1,281

772

17
2,054

373

5,986

76
-82

352

159
3,424

2,474
-4
21
24

5
82

373

562
222

895

315
33

385

554

-554

587

1,496

171

387

-120
-330

2,431

3,439

1,146

2,293

241

-2

181

(+ .)

-63

177

8,822
(+ 0)

8,333

8,399

-8,399
49

10,070

8,838

18,677

49
18,908

6.098

129

241
139

38
8,333

(0 +)

7.769

6
-7.769
9

9,427

9,250

Periods-Continued
'able 5. Outlays of the U.S. Government, May 1994 and(SOt~er
mllhons]
Current Fiscal Year to Date

This Month
Classification

Gross iAPPllcabie
Outlays
Receipts

)epartment of Agriculture:
Agflcultural Research Service
Cooperative State Research Service
ExtenSion Service
Animal and Plant Healttl Inspection Service
Food Satety and Inspection Service
Agricultural Marketing Service
SOil Conservation Service
Watershed and flood prevention operations
Conservation operations
Other
Agricultural Stabilization and Conservation Service:
Conservation programs
Other
Famners Home Administration
Credit accounts:
Agricultural credit Insurance fund
Rural hOUSing Insurance fund
Other
Salaries and expenses
Other

Outleys

36
37
42
41
65

36
37
42
41
65
23
45
7

23
45
7
22
53

255
451

133
275

468
301
284
315
343
495
175
404
54

22
53

1,846
469

122
176

1,376
2,770

Total-Farmers Home Administration ..

757

)

41
10

-254
70

408

349

3,963

-44

590

51
24
16
-77
13

630
197
12
1,804
1,430

739
7

15,432
200

(

-44

Gross IAPPlicable
Outlays
Receipts

Gross IAPPllcablel Outla s
Outlays
Receipts
y

1,394
2,190

3,585

I OutiIyt

468
301
284
315
343
494

493
286
261
329
335
576

175
404
54

144
386
54

386

1,846
469

1,771
504

I,m

-18
580

1,535
2,104

-254
69

1,392
2,395
9
433
62

377

4,292

590

350

244
197
12
-913
1,082

687
148
20
1.880
508

10,504
200

21,171
163

(

(")

41
10

Prior Fiscal Yeer to D...

)

493
286
261
329

335
575

,e.
54

51)

-14.1

(")

29'
9

433
59

3,642

649

350

Foreign assistance programs
Rural Development Administration:
Rural development insurance fund
Rural water and waste disposal grants
Other
Rural Electnfication Administration
Federal Crop Insurance Corporation
Commodity Credit Corporation:
Price support and related programs
National Wool Act Program

1,269
7

Food and Nutrition Service:
Food stamp program
State child nutntion programs
Women, Infants and children programs .
Other

2,213
670
290
37

17,125
5,081
2,168
366

16,408
4,850
1,947
457

16,408

Total-Food and Nutrition Service

3,210

24,740

23,662

147
25
21
66

1,069
210
260
401

1,100
239
218
434

1,100
239

258

1.940

1,940

1.991

1,99'

4
-67

435

412
-1,040

419

89
24
16
93
16

For es t Serv Ice
National forest system
Forest and rangeland protection
Forest service permanent approprialions
Other
Total-Forest Service
Other
Propnetary receipts from the public .
Intrabudgetary transactions
Total-Department of Agriculture
Department
Economic
Bureau of
Promotion

............. ,

170
3
529

3
67

386

2,717
348
4.927

24
1,040

318

148

20
2,743
324

-863

4,865

16,306
163

of Commerce:
Development Administration
the Census
of Industry and Commerce

6,126

1,218

21
17
26

SCience and Technology
National OceaniC and Atmospheric Administration
Patent and Trademar1\ Office
National Inslttute of Standards and Technology
Other
Total-SCience and Technology

160
-5

1,947
457

218
434

26
724

m
-724
-1~

4,908

56,525

13,028

43,497

60,278

12,642

4711

20
17
26

181
181
206

171
181
206

83
239
207

70
239

158

1,285
36
80
59

1,101
40
148
58

1,~

1,275
36
80
36

141
31

1,460

1,428

1,348

-5

-44

184

4,850

-150

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

369

-44
3

117

112

201

4Il

l,lll

Other
Proprretary receipts from the public
Intraoudgetary transactions
OHsettlng govemmental receipts
Total-Department of Commerce

9
(")

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

188

7
-9
(' 0)

173

..)

(

2,099

70
-79
('")

121

1,971

n
1,951

77
("')

135

7'
-T?
I"
I"~

-=
1~5

Table 5. Outlays of the U.S. Government, May 1994 and Other Periods-Continued
[$ millions]
This Month

Current Fiscal Year to Date

Classification
Gross \APPIk:able\ Outlays
Outlay. Receipts
Department of Defense-Military:
Military personnel:
Department of the Army ....
Department of the Navy
Department of the Air Force

.., ....... , .....
.................

Gross \APPllcab,e
Outlays Receipts

Outl
ays

Prior Fiscal Year to Date
Gross !APPliC8ble\ Outla s
Outlays
Receipts
Y

1,057
1,382
712

17,491
17,285
11.829

17,491
17,285
11,829

18,540
18.142
13.715

18,540
18,142
13,715

3,150

46,605

50.398

50,398

1,509
1.563
1,778
1,503

1,509
1,563
1,778
1,503

13,736
14,164
15.985
12,965

13.736
14,164
15,985
12.965

16,025
15,996
15,553
12,412

6,354

56,851

56.851

59,986

623
2,041
1,538
343

5.459
17.263
15,588
2.741

5,459
17,263
15,588
2,741

7,596
19,415
16,778
2,333

7,596
19,415
16,778
2.333

4,545

4.545

41,050

46,123

Research, development, test, and evaluation:
Department of the Army .. ...........
Department of the Navy ..
Department of the Air Force .......... " ................
..............................
Defense agencies

450
716
1,111
813

3.819
5,019
8,464
5,510

3.819
5,019
8,464
5.510

4,074
5,355
8.392
5,967

4.074
5,355
8,392
5,967

Total-Research, development, test and evaluation

3,090

22,813

22.813

23,789

89
23
93
260

604
354
688
1.321

604
354
688
1,321

683
582
772
1.049

683
582
772
1,049

465

2,967

3.086

3,086

111
67
78
9

111
67
78
7

846
524
688
69

846
524
688
47

877
564
595
56

877
564
595
46

85
21

56
244

21
-54

478
-14

478
-15

2,545
-239

2.545
-243

1,504
-123

1,504
-127

r .)

(

..22

(' ')

r 'j

{")

(")

31
23
71

12
19

19
4
71

244
116
295
20

-244
-116
-295
-2D

Total-Military personnel
Operation and maintenance:
Department of the Army
Department of the Navy
Department of the Air Force .
Defense agencies

............ , ............

Total-Operation and maintenance .
procurement:
Department of the
Department of the
Department of the
Defense agencies

Army ..
Navy
Air Force ....

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

...........

Total-Procurement ..

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

Military construction:
Department of the Army ..
Department of the Navy
Department of the Air Force
Defense agencies .............
Total-Military construction

........ , .........
..... ...............
,

Family housing:
Department of the Army ..... .............................
Department of the Navy ..................................
Department of the Air Force .. """"""".",,""'"''
... , " , ......................
Defense agencies
Revolving and management funds:
....... , .. '
Department of the Army ....
Department of the Navy ...... , ...........................
Department of the Air Force . ...................
Defense agencies:
Defense business operations fund ... , ........
Other ........... "" .................. " ..... " ... """"
Trust funds:
Department of the Army ..
... , ........
Department of the Navy .... ,.
...........
Department of the Air Force ...........
..............................
Defense agenCies
Proprietary receipts from the public:
Department 01 the Army .. , ' ..... ... , ...... , .............
.............................
Department 01 the Navy
...........
Department of the Air Force
." ... , . , .... , ....
Defense agenCies
Intrabudgetary transactions:
Department of the Army .......... ........................
Department of the Navy ..................................
Department of the Air Force ." .............
Defense agencies ...... , ...................................
:)ffsetting govemmental receipts:
Department of the Army ..................................
Defense agencies ........... , ... , ................. , ' .. , ....

(' 'j

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

(

)

(")

7
-60
-18
-23
12

Total-Department of Defense-Military

18,444

(' ')

(")

-85

18,530

)

6
150

150
49
67
328
208

60
18
23
-12
-32
5
4
18

-32
5
4
18

120
528
120
-56

175,907

-49
-67
-328
-208
120
528
120
-56

21
-54

144
496
116
-1.017

144
496
116
-1,017

-6

(")

-18
-27

698

175,209

765

185,920

186,685

Periods-Continued
rable 5. Outlays of the U.S. Government, May 1994 and[SOther
millions]

Classification

Department of Defense-C,v;1
Corps of Engineers
Construction. general
Operation and maintenance. general
Other
Propnetary receipts from the pubhc

Current Fiscal Year to Date

Gross IAPPlie.able I Outlays
Outlays
Receipts

Gross iAppllcablel Outlays
Receipts
Outlays

589
693
1.048

72
86
104
-22

241

2,330

72
86
104
262

Total-Corps of Engineers
Military retirement
Payment to military retirement fund
Retired pay
MIlitary retirement fund
Intrabudgetary transactions
Education benefits
Other
Propnetary receipts lrom the pubhc .

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

Departmant 01 Education:
Office of Elementary and Secondary Education:
Compensatory education for the disadvantaged
Impact aid
School Improvement programs
Indian education
Other

2,249

12
7

12
7
-1

Office of BIlingual Education and Minority Languages
AffairS
Office of Special Education and Rehabilitative Services'
Special education
Rehabilitation services and disability research
Special institutions for persons with disabilities
Office of Vocational and Adult Education
Office 01 Postsecondary Education
College hOUSing loans
Student financial asslslance
Federal family education loans
Higher education
Howard UniverSity
Other

660
921
827

110
110

2,220

2,407

11,908

12,273

(")

(")
17,066

Total-Energy programs
Power Ma"ketJng Administration
Departmental administration
Propne:ary receipts from the publiC
Int'abudgetary transactJOns
Offsetting govemmenta receipts
Total-Oepartment of Energy ... ................. ,

20,073

19,645

2,279

-12,273

126
3
6

43
-li

137

19,501

4.724
745
1.107
53
9

4,724
745
1,107

904

6,639

6.639

6,638

150

131

255
173
9
93

2,071
1.524
90
947

2.071
1.524
90
947

1.814
1,373
B8
1,029

1,814
1,373

-6
358
275
64
24
30

1
5,205
-2,376
485
143
62

-36
5,205
-2,376
485
143
62

12
5.483
3,003
473
133
12

744

3,520

3,482

9,116

286
243
116

2B6
243
-116

241
231

34
22
-12

2,243

15,470

154

15,316

20,661

939

7,889

7.889

7,104

94
247
8
37
53
21

853
2,015
245
270
370
196

952
1.877
755
261
331
303

2,261

53
9

1,029

-38
5,483
3,003
473
133
12

9,066

241
231
47

-47

20,564

7,104

952
1,877

755
261
331

113

22
73

(00)

22
73

175
587

175
585

165
102

557

4,711

4,709

4,746

146
49

153

1,176
300

1,148

981

107

2B
300
-1,147
-274
-107

1,391
261

-7
49
-276
-49
-56

485

1,158

13,802

2,404

11,398

13,283

276
-49

.......

120

128

4,859
702
1,019
52
7

34
22

Energy programs
General sCience and research actiVities
Energy supply. Rand D activities
Uranium supply and enrich men 1 activities
FOSSil energy research and development
Energy conservatJOn
Strategic petroleum reserve
Clean coal lechnOlogy
Nuclear waste disposal fund
Other

17,066
-12,273
126
46

128

921
627
-128

4,859
702
1.019
52
7

750

Department 01 Energy:
AtomiC energy defense activities

2
8

17.664
-11,90B
127
50
-8

660

735
30
131
6

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

OutIiys

30
131
6

Office of Educational Research and Improvement
Depar1mental management
Propnetary receipts from the pUbliC .

Applicable I
Receipts

20,194

358
275
64
24

Total-Offrce oj Postsecondary Education

Gross
Outlays

2,507

2,530

735

Total-Office of Elementary and Secondary
Education

17.684
-11,908
127
52

Dill

Prior Fiscal Year to

589
693
1,048
-110

11,908

Total-Department 01 Defense-Civil

Total-Department of Education

This Month

1,643

1,147
-274

1.504
-219
19

2,506

165
100

--=
(,743

4tC

261
-1.$1
-21S
-lS

10,m

Table S. Outlays of the U.S. Government, May 1994 and Other Periods-Continued
[$ millions]

This Month

Current Fiscal Year to Date

Gross !APPlicable\ 0 II
Outlays Receipts
u ays

Gross IAPPlicable lOti
Outlays Receipts
u aya

Prior Fiscal Year to Date

Classification
Gross
Outlays

IAPPIi~blel
Receipts

Outlays

Department of Health and Human Services, except Social
Security:
Public Health Service:
Food and Drug Administration ........ .
Health Resources and Services Administration
Indian Health Services ............... ..
Centers for Disease Control and Prevention ............ .
National Institutes of Health ....................... ..
Substance Abuse and Mental Health Services
Administration ...................................... .
Agency for Health Care PoliCY and Research ........... .
. ............... .
Assistant secretary for health ..

(")

911

234
154
111
911

508
1.539
1,149
969
6,810

205
11
-62

1,547
64
133

1,630

12,720

6,982
2.980

6,982
2,980

8,249
90

489
1,496
1,069
849
6,381

505
1,539
1,149
969
6,810

492
1.496
1,069
849
6,381

1,547
64
133

1,802
35
105

12,717

12,230

54,083
27,422

49,131
29,860

8,249
90

65,953
826

58,734
793

8,339

66,779

59,527

4,482

140

37,046
1,119

37,046
1 ,119

33,651
962

Total-FSMI trust fund

4,623

38,165

34,614

Other ..................... .

22,944

186,466

173.213

173,213

Total-Public Health Service ....
Health Care Financing Administration:
Grants to States for Medicaid .....
Payments to health care trust funds
Federal hospital insurance trust fund:
Benefit payments .........
. .................. .
Administrative expenses ............ . ................. ..
Interest on normalized tax transfers .................. .
Total-FHI trust fund
Federal supplementary medical insurance trust fund:
.. .............. .
Benefit payments .............
Administrative expenses ............. .

Total-Health Care Financing Administration.
SOCial Security Administration:
Payments to Social Security trust funds ..... .
Special benefits for disabled coal miners ........ .
Supplemental security income program ....... . ......... .

234
154

111

1,630

(")

1,802
35
105

12,227

64
226

4,145
521
16,137

4,623
539
14,964

298

20,803

20,127

1 ,480
133
16
40
63
15
51
237
325

1,480
133
16

11,294
1,835
254
295
538
615
516
1,849
2,615

10,695
986
265
252
487

51
237
325

11,294
1,835
254
295
538
615
516
1,849
2,615

232
1.955
2,418

232
1,955
2,418

262
(")

2.064
(")

1.724
(,0)

1,724
(")

Total-Administration for children and families ....... .

2,622

21,874

19,106

Administration on aging ................... . ................ .
Office of the Secretary ....... .
PrOPrietary receipts from the public ..... .
Intrabudgetary transactions:
Payments for health insurance for the aged:
Federal hospital insurance trust fund ...... .
Federal supplementary medical insurance trust fund "
Payments for tax and other credits:
Federal hospital insurance trust fund ................. .
Other. ........
.. ............................... ..

62
25

549
130

549
130
-12,095

355
125

355
125
-10,421

-26,268

-29,378

-1.154

-1,154

-481

203,022

195.297

Total-Social Security Administration .
Administration for children and families:
Family support payments to States
................ .
Low income home energy assistance ................... .
Refugee and entrant assistance ........................ ..
Community Services Block Grant ...................... .
Payments to States for afde work programs ........... .
Itlterim assistance to States for legalization ............. .
Payments to States for child care assistance .. ' ....... .
Social services block grant ............................... .
Children and families services programs ................ .
Payments to States for foster care and adoption
assistance ............................................... ..
Other ..................................................... ..

Total-Department of Health and Human Services,
except SOCial Security .............................. ..

40
63

1,608

-2,980

24,601

-1,608

1.608

22.993

12,095

215,120

12,097

10,421

10,424

184,872

Periods-Continued
rable 5. Outlays of the U.S. Government, May 1994 and[$Other
millions]
Current Ascal Year to Date

This Month
Classification

Department 01 Health and Human Services. Socilll
Secunty (off-budget):
Federal old-age and survIVors Insurance trust fund
Benefit payments
Administrative expenses and construction
Payment to railroad retirement account
Interest expense on Interiund bOrrOWings
Interest on normalized tax transfers
Total-FOASI trust fund
Federal disability Insurance tnust fund:
Benefit payments
Administrative expenses and oonstnuction
Payment to railroad retirement acoount
Interest on nonmalized tax transfers
Total-FDI trust lund
Proprietary receipts from the public
Intra budgetary transactions 1
Total-Depanment of Health and Human Services,
Social Security(off-budget) . __ .......... __ .......... __ ...
Depanment 01 Housing and Urban Development:
Housing programs:
PubliC enterpnse funds
Creeit acoounts'
Federal housing administration fund
HOUSing for the elderly or handicapped fund
Other
Rent supplement payments
Homeownership aSsistance
Rental hOUSing assistance ..
Rental hOUSing development grants
low-rent public housing
Public housing grants
College housing grants
Lower Income housing aSSistance
SectIOn 8 contract renewals
Other
Total-Housing programs
Public and Indian HOUSing programs'
Low-rent public housing-loans and other expenses
Payments for operation of low-inoome housing
prOjects
Community Partnerships Against Crime
Other
Total-Public and Indian HOUSing programs
Government National Mortgage Association:
Management and liquidating functions fund
Guarantees of mortgage-backed securities
Total-Government National Mortgage Association
Community Planning and Development:
Commumty Development Grants
Home Investment partnerships program
Other
Total-Community Planning and Development
Management and Administration
Other
Propnetary receipts from the publiC
Offsetting governmental receipts
Total-Oepamnent 01 Housing and Urban
Development ....... .....................................

Gross
Outlays

Gross !APPlicable! Outlays
Outlays
Receipts

1 1
Applicable
Receipts

Outl

Prior Fiscal Year

D."

Gross jAPPIiClblej
Outlays
Receipts OutIiYl

ays

23.192
60

183.267
1.054

175.356
1.234

23.252

184.321

184,321

176.590

3.180
95

24,168
662

22,052
591

3.275

24,829

22.643

22,643

-10
-4,140

-4.636

-7

-2

-7

-4,140

(")

-4,636

26,520

26,518

205,011

205,001

194,598

(* *)

101

-271
-12
34
15
9
59

-76
61

-195
-73
34
15
9
59

4,162
469

-277
227
293
48
70
439
5
545
2,155
13
6,980
2,285
42

3,811
791
198
37
58
437
13
564
1,592
13
7,176
1,568
14

3,318
430

113
279
2
876
291
7

3,884
696
293
48
70
439
5
545
2,155
13
6,980
2.285
42

1.419

17,555

4,718

12,837

16,324

3,795

12,529

293

195

137

114

1,698
107

1,583
66

(

)

113
279
2
876
291
7
1.417

-2

(

)

262
16
279

)

(")

( )

194,S97

493
361
198
37
58
437
13
564
1,592
13
7,175

1.568
14

262
16

1.698
107

1,583

279

2,098

195

1,903

1,786

1,762

-30

(00)
697

1
1,029

-1
-332

761

2
1,099

-2
-331

-30

697

1,029

-333

761

1.101

288
73
20

286
73
11

2,261
438
192

2,261
438
106

2,077
84
193

III

381

372

2.891

2,804

2,355

337
23

28
2
-22

337
23
-175

364
23

28
2

2,172

124

2,048

175
5
23,601

6,210

17,391

2.0n
S4

204
3

-5
21,613

-340

5,202

2.2*1

J6!
21
-2'1'
~~

=
-=
16,41\

Table 5. Outlays of the U.S. Government, May 1994 and Other Periods-Continued
[$ millions)
ThiS Month

Currant Fiscal Year to Date

GrotlS IAPPlicable I Outlays
Outlays Receipts

Gross lAPPlicabl1 Outl
ays
Outlays Receipts

Prior Fiscal Year to Oate

Classification
Gross IAPPlicable
Outlays Receipts

Oullays

Department of the Interior:
Land and minerals management:
Bureau of Land Management:
Management of lands and resources
Other
Minerals Management Service ........... .
Office of Surface Mining Reclamation and
Enforcement .. . ..................... .
Total-Land and minerals management
Water and science:
Bureau of Reclamation:
Construction program
Operation and maintenance
......................... ..
Other ..
Central utah project ........... .. ........................ .
.. ........................ .
Geological Survey .......
Bureau of Mines ......................... .

15
54

437
153
513

192

195

139

1,296

1,234

1.234

15
2B
43

15
2B
3B

191
179
180
20

174

185
317

lB5
221

47
16

149

141

1,209

85
9
107

200

Bureau of Indian Affairs:
Operation of Indian programs ............. .
Indian tribal funds ..................... .
Other ................................. ..

45
19
15

Total-Bureau 01 Indian Affairs ... .

Fish and wildlife and parks:
United States Fish and Wildlife Service ""
National Biological Survey .......... .
National Park Service ............... ..
Total-Fish and wildlife and parks

Territorial and international affairs ......................... ..
Departmental offices
.. . .. . .. . .. .. .. . .......... ..
Proprietary receipts from the public ....................... ..
Intrabudgetary transactions ................................. .
Offsetting governmental receipts ........................... .

Total-Department of the Interior ............. , ........ ,
Department of Justice:

(* *)

109

404
18

109

421
135

421
115

127

1,083

1,233

116

1,117

811
59
960

854

952

200

l,B30

1,830

1,805

45
19
14

886
190
320

886
190
314

910
112
199

910
112
185

1,396

1 ,3B9

1 ,221

1,207

205

173

r *)
138

-2
595

-138

-2

1,324
-201

-1,324
-201

173
~

1,322

-1,322
-89

(* *J

(* *)

1,452

4,216

-89

(. *J

r *)

1,457

4,375

5,668

1,952
1,358
530
1,000
1,442

358

1,608
1,432
516
990
1,501
579
401
-23
-358

437

6,645

7,392

2,554
257
95

2,482
263
103

144

-1
7,050

7.050

873

147

448

5,832

1,608
1,432
516
990
1,579
579
401
-23

159
159
49
155
185
100
103
-4
-70

836

7,082

333
36

2,554

========================================
159
159
49
155
195
100
103
-4

Total-Department of Justice .. ,........................

917

Employment and Training Administration:
Training and employment services ....... . ....... , ...... .
Community Service Employment for Older Americans .,.
Federal unemployment benefits and allowances ., ...... .
State unemployment insurance and employment service
operations ............................................... ..
Payments to the unemployment trust fund ............ .
Advances to the unemployment trust fund and other
funds ..................................................... .

(* *)

Legal activities ......... ..................
Federal Bureau of Investigation ..........
Drug Enforcement Administration.........
Immigration and Naturalization Service ......................
Federal Prison System .................... .. ........ ,.......
Office of Justice Programs .................................
Other ......................... ...............................
Intrabudgetary transactions .......................... ,.......
Offsetting governmental receipts ............................

Department of Labor:

422
152
465

139

191
179
2B9
20
404
127

Total-Water and sCience ..................... ..

437
153
513

633

668
-190

1,952
1,358
530
1,000
1,379
633
668

333

-190
-333

396

6,997

========================================
333
36

-20

257

2,547

2,482
263

103
-1

Periods-Continued
'able 5. Outlays of the U.S. Government, May 1994 and[$Other
millions}
--

This Month
Classification

Gross !APPliCBble
Outlays
Receipts

lepartment of Labor:-Conlinued
Unemployment trust lund
Federal-State unemployment Insurance
State unemployment benefits
State administrative expenses
Federal administratIVe expenses
Veterans employment and training
Repayment of advances from the general fund
Railroad unemployment Insurance
Other
Total-Unemployment trust fund
Other
Total-Employment and Training Administration

Outlays

Prior Fiscal Year

!APPli~blel
Receipts

Gross /AppUClbIe!
Outlays
Receipts

Gross
Outlays

Outla s
y

0utIaya

1,815
282
7
18

20,012
2,090
132
125

20.012
2,090
132
125

24,699
2,272
81
114

24,699
2,212

4
2

49
14

53
14

2,128

22,422

22.422

27,232

21,232

2,503

28,076

38,071

-68

844

-281

551

19
151
50
10
25
22
48

154
33
401
83
194
176
314

154
33
401
83
194
176
314
-2
-2,976

153
104
408
81
188
191
299
-8,648

26,173

31,399

Pension Benefit Guaranty Corporation
Employment Standards Administration
Salaries and expenses
SpeCial benefits
Black lung disability trust fund
Other
Occupational Safety and Health Administration
Bureau ot Labor StatistiCS
Other
Propnetary receipts from the public
Intrabudgetary transactions

to Dlte

Current Fiscal Year to Date

138

19
151
50
10
25
22
48
(' 0)

1,124

114

1,203

153
104

408
81

188
191

299
-2

-8,648

-79

-2,976

2,679

27,299

79
62

1,209
387

1,443
311

32
4

125
265
75

119
276
68

119
276

Total-Adminlstratton of Foreign Affairs

177

2,060

2,218

International organizations and Conferences
Migration and refugee assistance
InternallOnal narcotics control
Other
Propnetary receipts from the pubhc
Intrabudgetary transacliDns
Offsetting governmental receipts

25
97
15
7

1,182
475
79
45

1,118
492
93
48

1,118
492

Total-Department 01 Labor

-79

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

)epartment 01 Stete:
Administration of Foreign AffairS:
Salanes and expenses
ACQUISition and maintenance of buildings abroad
Payment to Foreign Service retirement and disability
fund
Foreign Service retirement and disability fund
Other

2,818

139

1,126

1,204

3O,1M

( )

93
48
(")

( )

(

..)

-176

-165

320

3,664

3,B03

1,430
4
22

11,092
85
162

9,335
93
147

1,456

1.456

11,339

9,576

National Highway TraffiC Safety Administration

169

158

Federal Railroad Administration:
Grants to National Railroad Passenger Corporation
Other

425
245

425
237

345
239

670

662

584

Total-Department of State ., .. ,., ..... __ ..

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

Department 01 Transportation:
Federal Highway Administration'
Highway trust fund
Federal·ald highways
Other
Other programs
Total-Federal Highway Administration

Total-Federal Railroad Administration

-165

3,803

34S

228

573

Table 5, Outlays of the U,S, Government, May 1994 and Other Periods-Continued
[$ millionsl
This Month

Current Fiscal Year to Date

Classification
Gross jAPPlicablel Outlays
Outlays
Receipts
Department of Transportation:-Continued
Federal Transit Administration:
Formula grants
.............
Discretionary grants
...........
Other
Total-Federal Transit Administration
Federal Aviation Administration:
Operations . .. . . . . . . . . . .

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

,. . ...................

Airport and airway trust fund:
Grants-in-aid for airports ..... ..................
, . . . . . . . . . . . . .. . . . .
Facilities and equipment
Research, engineering and development ..... Operations
.. - ........... ..... , .......
Total-Airport and airway trust fund ............ , ...

Gross IAPPlicable
Outlays
Receipts

Outlays

Prior Fiscal Year to Date
Gross jAPPlicable I OutJa s
Outlays
Receipts
y

-149
167
312

-63
1,077
2,023

1,234
818
274

329

3,037

2,326

167

1,684

1,491

102
198
19
191

1,027
1,473
141
1.434

1,027
1,473
141
1,434

1,234
1,293
123
1,520

510

4,074

4,169

4.169

(' ')

(")

(' ')

(

..)

-1

(' .)

-1

...........

676

(' 0)

676

5.759

5,758

5,661

5.659

Coast Guard:
Operating expenses ................ - .......... ............
Acquisition, construction, and improvements
Retired pay .............
. .....................
Other ....................

168
37
59
30

(")

168
37
59
30

1,603
219
333
229

1,603
219
333
225

1,606
174
334
189

1,606
174
334
185

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

295

(0 ')

294

2,385

2,381

2,303

2,299

.................
Maritime Administration ...
. ...................
Other .... .......... .......
Proprietary recei pts from the public .... ....................
Intrabudgetary transactions ..................................
Offsetting govemmental receipts ............................

75
29

4
1

72
28

584
263

362
8
5

532
251

(' ')
(oo)

10
5

337
259
-3
10
-5

893
259

(")

247
4
3

Other

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

Total-Federal Aviation Administration

Total-Coast Guard

Total-Department of Transportation

.......

•••• A

.......

Department of the Treasury:
Departmental Offices:
Exchange stabilization fund ............... ...............
Other ................. ................... . ...............
Financial Management Service:
.............................
Salaries and expenses
Payment to the Resolution Funding Corporation .........
Claims, JUdgements, and relief acts .... , ............. , ...
Net interest paid to loan guarantee financing accounts
.............
Other
Total-FinanCial Management Service

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

Federal Financing Bank .... .............
Bureau of Alcohol, Tobacco and Firearms:
Salaries and expenses .............
Intemal revenue collections for Puerto Rico ..............
.................
United States Customs Service
.................
Bureau of Engraving and Printing ....
.................
, United States Mint .............
.................
Bureau of the Public Debt ..... , .....
Intemal Revenue Service:
Processing tax returns and assistance ..................
..................
Tax law enforcement ......
Information systems ............... , .. ...................
Payment where eamed income credit exceeds liability
for tax ............................ .......................
Health insurance supplement to eamed income credit
Refunding internal revenue collections, interest
Other ................................ .......................
Total-Internal Revenue Service

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

(oo)

-1

-5

-3
-50

-3

2,9D3

24,216

272

23,944

21,756

441

21,315

-202
47

-203
47

-766
116

-773
116

-821
142

-830
142

102

161
1.751
345
2
95

151
1,751
372
20
94

136

2,354

2,387

-114

-216

28
15
179

(00)

(* ')

-7
13

257
131
1,290
5
-42
182

241
128
1,174
35
-3
188

158
302
104

1,122
2,527
762

1,064
2,534
814

728
71
231
12

10,599
421
1,737
103

8,505
608
1,192
102

1,606

17,271

14,818

2,910

(")

..)

(

14,818

Table 5. Outlays of the U.S. Government, May 1994 and Other Periods-Continued
[$ millions)

Classification

This Month

Current Fiscal Year to Date

Gross I Applicable I Outlays
Outlays
Recaipts

Gross IAPPlicabiel
Oudays
Receipts
Outlays

Prior Fiscal Year to Olte
Gross
Outlays

IAPPIiC8b1~1
Receipts

OutleY'

Department of the Treasury:-Continued
United States Secret Service
Comptroller of tne Currency
Office of Tnrlft Supervlson
Interest on the pubhc debt.
Pubhc Issues (accrual baSIS)
Special Issues (casn baSIS)
Total-Interest on tne pubhc debt

17.612
6.332

23.943

326
28
31

346
230
142

136.554
50.556

137.284
49.306

137.284

23.943

187.110

186.590

4
-194

39
2.039

39
-2.039

194

-820
-83

-7.256
508

-7.256
-508

-8.749

83
24,903

294

24,609

201,170

2,865

198,304

1.192
40

1.192
18

9.909
748

178

46
1
10
97
79
2

996
413
274
11.396
817
59

98
2
7
3

823
12
90
-3

346

14,877

55
119

448
697

-820

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

Department of Veterans Affairs:
Veterans Healtn Administration:
Medical care
Otner
Veterans Benefits Administration:
Pubhc enterprise funds:
Guaranty and Indemnity fund
Loan guaranty revolving fund .
Otner
Compensation and pensions
Readjustment benefits
Post-Vietnam era veterans education account
Insurance funds'
National service life
United States govemment life
Veterans special life .
Other

114
41
18
97
79
2

68
40
8

98
2
10
3
464

Total-Veterans Benefits Administration
Construction
Depanmental administration
Propnetary receipts from the public:
National service life
United States govemment life
Other
Intrabudgetary transactions

326
251
117

Otner
Proprietary receipts from tne publiC
Receipts from off-budget federal entities
Intrabudgetary transactions
Offsetting governmental receipts
Total-Department of the Treasury

32
13
12

32
28
13

3
119

55
119

(

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

Total-Department of Veterans Affairs

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

Environmental Protection Agency:
Program and research operations
Abatement. control. and compliance
Water Infrastructure financing
Hazardous substance superfund
Otner
Propnetary receipts from the public .
Intra budgetary transactions
Offsetting governmental receipts
Total-Environmental Protection Agency

63
92
155
105
47

225

(

)

479
320
160

95
1,053

-25

233

(

..)

-60
(

)

-27

1,645

26,651

63
92
155
105
47
-23

561
819
1,262
919
537

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

463

352
33
6
26

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

417

439

3,847

352
33
6
26

-211
-10
57
86

..)

( )

(

(. ')

417

-79

49.306

-8.749
-481

196,674

2,154

194,511

9.909
570

9.354
403

168

235

517
93
115
11,396
817
59

768
531
311
11.240
601
77

250
365
265

518
166
45
11.240
601

823
12
-5
-3

730
13
86
-1

13,824

14.356

981

13,375

448
697

393
736

(")

393
736

-265

-233
(

9.354

100

265

589
822
1,315
919
519

561
819
1,262
919
534
-136
-250
-6

145

3,702

3,913

142
23
16
87

-211
-10
57
86
-3

-82

268

730
13
-14
-1

)

(")

505

-505
-22

1,920

23,301

(

)

25,221

-250

24
32

481

23,969

3
136

34S

42
-1.348

-22

2,682

206
110

1.348

-1,218
-27

1,218

-1

General Services Administration:
Real propeny activities
Personal propeny activities
Information Resources Management Service
Other
Propnetary receipts from the public
Total-General Services Administration

r ')
1,870

)

224
87

589
822
1,315
919
17
112

502
-112

-25C

-250
7

-7

135

3,m

142
23

16
87
-3

215
~

-::--

rable 5. Outlays of the U.S. Government, May 1994 and Other Periods-Continued
[$ millions]
This Month

Current Fiscal Year to Date

Classification
Gross \APPlicable/ Outlays
Outlays
Receipts

Gross
Outlays

Applicable lOti
Receipts
u ays

Prior Fiscal Year to Date
Gross JAPPlic.able\ Outla s
Outlays
Receipts
y

~8tional

Aeronautics and Space Administration:
Research and development ...........
. ................ .
Space flight, control, and data communications
Construction of facilities
Research and program management
Other ...
Total-National Aeronautics and Space
Administration , .. , ........................ , .............. .

Office of Personnel Management:
Government payment for annuitants, employees health
and life insurance benefits
................ .
Payment to civil service retirement and disability fund ... .
Civil service retirement and disability fund
Employees health benefits fund .......... .
Employees life insurance fund
Retired employees health benefits fund
Other
Intrabudgetary transactions'
Civil service retirement and disability fund:
General fund contributions
....................... .
Other.
. ......... .
Total-Office of Personnel Management ...•...........
Small Business Administration:
Public enterprise funds:
Business loan fund
Disaster loan fund
Other .. ..
Othef ..... .
Total-Small Business Administration
)ther independent agencies:
Action ...
Board for International Broadcasting
Corporation for National and Community Service
Corporation for Public Broadcasting .............. .
District of Columbia:
Federal payment ................................... .
Other ....................................... .
Equal Employment Opportunity Commission ........ .
Export-Import Bank of the United States .................. .
Federal Communications Commission ....... .
Federal Deposit Insurance Corporation:
Bank insurance fund ................ . ......... .
Savings association insurance fund
FSLlC resolution fund ................... .
Affordable housing and bank enterprise
Federal Emergency Management Agency:
Public enterprise funds ... .
Disaster relief ............. ..
Emergency management planning and assistance
Other.... .................. .....
.. ......... .
Federal Trade Commission
Interstate Commerce Commission
Legal Services Corporation ..
National Archives and Records Administration ...
National Credit Union Administration:
Credit union share insurance fund
Central liquidity facility
Other ..

508

409
30
161

4,309
3,224
265

4,621
3,414
352

1,091
10

4,309
3,224
265
1,091
10

4,621
3,414
352
1,056
10

1,056

1,110

8,899

9,452

379

2,634

2.422

2,422

23,967
10,041
910
5

10,532

23,967
-491

1,825

-915

3,043
-88
-325
(0 OJ
6

102

23,078
9,526
874
6
57

-3

-23

-29

3,043
1,268
114

1,356
439

{" 'j

10,117
1,700
6

23,078
-590
-826
r °1
57

-29

4,809

1,797

3,012

37,635

12,362

25,273

35,935

11,822

24,113

29
20

375
130

271
197

105
-67

752
288

485
331

267
-43

(0 OJ

(0 0)

369

8
(' 0)

369

336

9
(0 'j

21
336

120

891

476

414

1,407

826

581

17
14
4

109
129

163

135
163

17
275

275

319

698
-9
155

698
3
149

C')

149

-727
68

787
86

1,380
25

-593

-6,368
-534
-839
3

6,335
7

11,277

2,163

963

-4,942
-431
1,200

526
1,317
162
215

17
14
4

698
3

r OJ

156

r OJ

-33

681

1,408

72
4

148

530
19

326

119

-382
-16
207
4

1,760

8,129
551
2,374

17
1,535
3

-8

282

267
14
5
8

267

2,434

153

5
8

168
59

2
33

28
264
152

(0 0)

-3
54
23

220
54
48

CO)

-26

-28

r 0)

(' OJ

r ')
8

135

245

2,434
153
168

59
28

698
24

438

-21
60

203

323
1,317
162

215

28
268
134

28
268
CO)

134

-223

328

-303

(' 0)

75
22

(0 0)

-23

264
152

-25

Periods-Continued
Table 5. Outlays of the U.S. Government, May 1994 and($Other
millions]
Current Fiscal Year 10 Date

This Month
Classification

Gross IAPPlicablel Outlays
Outlays
Receipts

Other independent agencies:-Continued
Nallonal Endowment for the Arts
National Endowment for the Humanities
National Labor Relations Board
National SCience Foundation
Nuclear Regulatory Commission
Panama Canal Commission
Postal Service
Public enterpnSe funds (off-budget)
Payment to the Postal Service fund
Railroad Retlfement Board·
Federal Windfall subSidy
Federal payments to the railroad retirement accounts
Rail Industry pension fund:
Advances from FOASDI fund
OASDI certifications
Administrative expenses .
Interest on refundS of taxes .
Other.
Intrabudgetary transactions
Payments from other funds to the railroad
retirement trust funds
Other
Supplemental annuity pension fund
Railroad SoCial Security equivalent benefit account
Other

12
15
12
211
38
45

52
45

3.155

23.695

12
15
12
211
-14

( )

31.188
107

114
105
116
1.593
15
-29

115
99
114
1.490
317
346

-1,957
107

330.399
130

--.

Ou1Itys :

115

99
324
364
332.243

114
1.•00
-7
-19
-1.a..
130

182
38

195
44

195

-91
91

-723
723
48
16
6

-712
712
47
5
4

-712

-91
91
5
(""J
1

250
400

-38
1.952
3.188
("")

-38
1.952
3,188
(" "J

-44
1.924
3.119
3

1.924
3,119
3

679

5.392

5.297

5,29)

12.297
34
238
6.728
735
1,663

9.619

9.308
67
260
5.677
685
783

23,640

5.814
(' ")
879

2.678
34
238
914
735
784

123

-14,332
6)
260
1,461
685
659

70,101

63,237

6,863

68,764

75,664

-$,9(11

("")

(""J

('")

("I

5
("")

1.116

791
(""J
141

1.777
8
42
213
92
64

9,951

6,619

3,332

("")

(" "J

Undistributed offsetting receipts:
Other Interest

Total-Employer share. employee retirement

Gross IAPPlicab111
Oullays
Receipts

("")

2.892
8
42
1.004
92
205

Employer share. employee retirement:
Legislative Branch
United States Tax Court:
Tax court ludges survivors annuity lund
The JudiCiary:
JudiCial survivors annUity fund
Department of Defense-Civil·
Military retirement fund
Department of Health and Human Services. except
SOCIal Secunty
Federal hospital Insurance trust fund·
Federal employer contributions
............
Postal Service employer contnbutions
Payments for military service credits
Department of Health and Human Services. Social
Secunty (off-budget):
Federal old-age and survivors insurance tnust lund:
Federal employer contributions
Payments for military service credits
Federal disability Insurance trust fund:
Federal employer contributions
Payments for military service credits
Department of State
Foreign Service retirement and disability fund
Office of Personnel Management:
C,Vil service retirement and disability fund
Independent agenCies
Court of veterans appeals retirement fund

33.146

u ays

Resolution Trust CorporatIOn
Securities and Exchange Commission
Smithsonian Institution
Tennessee Valley Authority
United States Information Agency
Other

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

337
375

0 II

("")

679

114
105
116
1.593
353
346

Total-Railroad Retirement Board

Total-Other independent agencies

Gross jAPPlicable!
Outlays
Receipts

Prior Fiscal Yelr 10 OlltI

44
711
47
5

-44

4.210
("")

('"J

("")

1"1

-1,062

-1.062

-8.535

-8.773

-6.113

-143
-50

-1.201
-345

-1.190
-304

-1,190

-464

-3.592

-3.547

-50

-386

-379

-319

-9

-73

-72

-780

-6.548

-6.332

2.557

-2,557

-20.682

-20,682

-20.597

-31)4

-20.59'

Table 5. Outlays of the U.S. Government, May 1994 and Other Periods-Continued
[$ millions)
This Month

Current Fiscal Year to Date

Prior Fiscal Year to Date

Gross \APPlicable! Outlays
Outlays
Receipts

Gross lAPPlicable\
Outlays Receipts
Outlays

Gross jAPPlic.able! Outla s
Outlays Receipts
Y

Classification

Undistributed offsetting receipts:-Continued
Interest received by trust funds:
The Judiciary:
Judicial survivors annuity fund
Department of Defense-Civil:
Corps of Engineers .......
. ............. .
Military retirement fund .. . .
. ......... .
Education benefits fund ....
. .......... .
Soldiers' and airmen's home permanent fund ..

Other..

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

Department of Health and Human Services, except
Social Security:
Federal hospital insurance trust fund ................. .
Federal supplementary medical insurance trust fund ..
Department of Health and Human Services, Social
Security (off-budget):
Federal Old-age and survivors insurance trust fund
Federal disability insurance trust fund ................ .
Department of Labor:
Unemployment trust fund .................... ..
Department of State:
Foreign Service retirement and disability fund
Department of Transportation:
Highway trust fund ................ . ............. ..
Airport and airway trust fund ..... . .................. ..
Oil spill liability trust fund
Department of Veterans Affairs:
National service life insurance fund ................... .
United States govemment life Insurance Fund
Environmental Protection Agency .... . ............ .
National Aeronautics and Space Administration ... .
Office of Personnel Management:
Civil service retirement and disability fund
Independent agencies:
Railroad Retirement Board ............... .
Other ...................................... ..
Other ................................................. .
Total-Interest received by trust funds ......... .

-4

-13

-1
-4,967
-16
("J

-1
-4,967
-16

-9
-10.224
-41

-9

-5

-10,224
-41

-6

-9,813
-46
-15

(")

..-6)

-9,813
-46
-15

(

(oo)

(

-24
-19

-5,364
-1,090

-5.364
-1,090

-5,249
-943

-185

-8

-14,294
-412

-12,650
-545

-15

-1,347

-1,398

-1

-281

-269

-10
-1

-2

-732
-425
-6

-761
-564
-43

-541
-5

-541

-543

-1

-1
-1

-543
-6
-1
-1

(' 'J

-2

....

(' .)
( )
( )

(")
(")
(' ')

-13

-5

-13

)

-6
-1
-1

-101

-13,120

-12,565

-93

-3

-426
-10
-113

-676
-10
-14

-48.463

-46.128

-46,128

-15

-426
-10
-113

-5,467

-48.463

475

Rents and royalties on the outer continental shelf lands ..
Sale of major assets ...................................... ..

Total-Undistributed offsetting receipts ., ..•.........•.

-8,024

475

Total outlays ............................................... ..

130,149

14,549

Total on-budget ......•• , ............................ , .••..

100,580

10,852

Total off·budget .... , .•...... ,., ..•....... , ...• ,., ........ .

29,568

3,697

-475

2,040

-2,040

-69,144

2,040

-71,184

115,600 1,098,330

132,039

966,291
781,931
184,360

-8,499

89,728

880,815

98,884

25,871

217,515

33,155

1,621

-1,621

-66,725

1,621

-68,346

1,081,047

138,995

942,052

873,172

106,752

766,420

207.875

32,244

175,632

Total surplus (+) or deficit ............................... .

-32,054

-165,289

-212,266

Total on·budget ........................ , ................ ..

-34,362

-202,091

-241,635

Total off·budget .......................................... .

+2,308

+36,802

+29,369

MEMORANDUM
[$ millions]

Receipts offset against outlays
Current
Fiscal Year
to Date
Proprietary receipts ................................................... .
Receipts from off·budget federal entities ....... . .................... .
Intrabudgetary transactions ............................................. .
Governmental receipts ................................................. ..
Total receipts offset against outlays ....................... .
'Includes FICA and SECA tax credits, non~ntributory military service credits, special benefits
the aged, and credit for unnegotiated OASI benefit checks.
"The Postal Service accounting is composed of thirteen 2lkJay accounting periods. To
,form with the MTS calendar ·month reporting basis used by all other Federal agencies. the MTS
leets USPS results through 5/30 and estimates for $152 million for 5/31.

31,810

Comparable Period
Prior Fiscal Year

27,731

123,413

~
156,557

30utlays for the Postal Service have been increased in February 1993 by $301 million and in
April 1993 by $274 million to record money orders issued, previously reported as oHsetting
receipts: and to record outlays previously reported as a deposit lund; respectively.
... No Transactions
(. ') Less than $500,000
Note: DetailS may not add to totals due to rounding

Table 6. Means 01 Financing the Deficit or Disposition of Surplus by the U.S. Government, May 1994 and Other PeriOds
($ millions]

Assets and Liabilities
Directly Related to
Budget Oli·budget Activity

Net Transactions
\ -) denotes net reduction of either
liability or assel accounts

Account Balances
Current Fiscal Vear

I Prior Year

This Vear
Liability accounts:
BorrOWing from the public:
.
PubliC debt securities. ISSUed under general Financing authontles:
Obligallons of the United States. ISSUed by
United States Treasury
Federal Flnancrng Bank
Total. publiC debt securities
Plus premium on public debt securities
Less discount on public debt sec unties
Total public debt secuntles net of Premium and
discount

Deduct
Federal seCUrities held as investments of government accounts
(see SChedule D)
Less discount on federal securities held as investments of
government accounts
Net federal securities held as investments of govemment
accounts
Total borrOWing from the public
Accrued Interest payable to the public ..
Allocations of special drawing rights
Deposit funds
Miscellaneous IlaMty accounts (Includes checks Outstanding etc.)
Total liability sccounts ....................................................
Asset accounts (deduct)
Cash and monetary assets:'
U.S. Treasury operating cash:
Federal Reserve account
Tax and loan note accounts
Balance

4,396.489
15.000

4553,704
15.000

4,594.296

40,593

197.807

231,657

4,411,489

4.568,704

4,609296

-19
611

-9
-10,843

370
4,700

1.373
86.397

1,383
74,943

75,\54

39,963

208.641

227.328

4,326.466

4,495,145

4,535.108

951

2.651

2,466

24,682

26,382

27,334

40.914

211.293

229,794

4.351,149

4.521,527

4,562,441

13,316

52.945

52.078

1,116,740

1.156,370

1,169,686

-12,011

135

12.709

648

698

13.265

64.956

51.943

1.104.032

1,155.722

1,168.988

Iii

27.649

146.337

177,852

3,247.117

3.365,804

3.393.4~

-10,100
-5
-1.593
7.955

-6.908
-217
608
6,095

43.819
6,950
16,249
13.228

51.543
6.964
5,732
12,354

33,719

7,559

142,594

177,430

3,307,362

3,442,397

3,449,957

-2.290
-19.247

-11.614
-13.698

-18.800
-19.689

17.289
35.217

7,965
40,766

5,675
21.519

-21,537

-25.312

-38.489

52.506

48.731

27,194

319

-2.964
2.000

9.203
-8.018

9,440
-8.018

9,522
-B.Oli

319

-964

1.185

1.422

1.504

-28
-251
(' ')

12.063
-561
-9.375
-32

31.762
5.864
-25.514
-98

31.762
5.943
-25.737
-103

31.762

-107
-28
6

11.897

11.841

320

-56

-262

2,414

12,103

5.944
4.656
11.184

5.835
-25.765

-98

(")

-817

2,851

1,587

22.414

26,081

25,26\

-22.329

-22,404

-35,451

88.208

88.132

65.8)4

-125
680
-2,668

-2,222
3.015
-636

-2.395
2.515
714

-6.320
6,862
-636

-8,417

-8.542

9.197
1,396

-1,272

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

24,441

-22,247

-34,617

88,114

90,308

85,111

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

+32,001

+164,842

+212,047

+3,352,090

t3,384,0iI

447

220

+32,054

+165,289

+212,266

Total cash and monetary assets
Net activity guaranteed loan financing
Net activity, drrect loan finanCing
Miscellaneous asset accounts
Total asset accounts

15,00)

-17.824
-20
-1,076
-1.170

Balance
Loans to International Monetary Fund
Other cash and monetary assets

231.657

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

Balance

This Month

197.807

Special draWing nghts:
Total holdings .
SDR certificates issued to Federal Reserve banks

Reserve pOSition on the U.S. quota in the IMF
U.S. subscripllOn to Intemational Monetary Fund:
Drrect quota payments
Maintenance of value adjustments
Letter of credll issued to IMF
Dollar deposits with the IMF
Receivable/Payable (-) for interim maintenance of value
adjustments

This month

40.593

Agency securities. Issuej under special financing authon1les (see
Schedule B. for other Agency borrowing, see Schedule C).
..
Total federal securities

Cloae 01

This Year

Beginning of

Fiscal Vear to Date
This Month

Excess 01 liabilities (+) or assets (-)

Transactions not applied to current year's surplus or deficit (see
Schedule a for Detarls).
' . . . . . . .. ...
.. ... .. ..
Totsl budget and off·budget lederal entities (financing of deficit (+)
or disposition 01 surplus ( )) ............................................
'Outl;ys for th~ Poslal Se""ce have been Increased In February 1993 by $301 million and in

(")

+3,219,248

394
+3,219,248

. . No Transacbons.
r 'J Less than $500.000
Note: Details may not add to totals due to rounding

A.Dr:1I 19_3 by 5214 mlll·on to record money orders ISSUed, previously reported as offsetting

rece:PI, and to recore outlays prev'OuSly repor1eO as a depoSit fund respectively
'MaJor sources of Inlonnatlon useO 10 detennlne Treasurys operating cash Income Include the
Dally Balance Wores IrOf!' "ederal Reserve Banks reportlng from the Bureau of Public Debt
~tri)n!c transfe~s through the Treasury FinanCial Communication System and reconCiling wlre~

.rom ,ntemal Rev,",ue Centers Operanng cash IS presenteO on a modlneO cash baSIS, deposrts
are rehectec 3S receIVed and Withdrawals are refiected as processed

+3,352,483

=9,871

---

Ail

+3,384,53'/

Table 6. Schedule A-Analysis of Change in Excess of Liabilities of the U.S. Government, May 1994 and
Other Periods
[$ millions]
Fiscal Year to Date
Classification

This Month
This Year

...

Excess of liabilities beginning of penod:
Based on composition of unified budget in preceding period
Adjustments during current fiscal year for changes in composition
of unified budget:
Reclassification of the Disaster Assistance liquidating Account,
FEMA. to a budgetary status
.................. .
Revisions by federal agencies to the prior budget results .... .
Reclassification of Thrift Savings Plan Clearing Accounts to a
non-budgetary status ............................................ .
Reclassification of Deposit in Transit Differences (Suspense)
Clearing Accounts to a budgetary status
:xcess of liabilities beginning of period (current basis) ....... .

Prior Year

3,351,515

3,218,965

2,964,066

575

284

101

(")

174
3,352,090

3,219,248

2,964,341

3udget surplus (-) or deficit:
Based on composition of unified budget in prior fiscal yr
Changes in composition of unified budget ..... .

32,054

165,289

212,266

rotal surplus (-) or deficit (Table 2)

32,054

165,289

212,266

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

Total-on-budget (Table 2)

34,362

202,091

241,635

Total-off-budget (Table 2)

-2,308

-36,802

-29,369

-53

-447

-220

rransactions not applied to current year's surplus or deficit:
Seigniorage ..................................................... .
Profit on sale of gold ............
. ...................... .
Total-transactions not applied to current year's Surplus or
deficit ........................................................ .
;xcess of liabilities close of period , .......... " ........... "." .• ,,"

(oo)

-53

-447

-220

3,384,090

3,176,387

Table 6. Schedule B-Securities Issued by Federal Agencies Under Special Financing Authorities, May 1994 and
Other Periods
[$ millions]
Net Transactions
(-) denotes net reduction of
liability accounts

Account Balances
Current Fiscal Year

Classification
Fiscal Year to Date
This Month
This Year

Beginning of
This Yeaf

Prior Year

..
..
.gency secuntles, Issued under special hnanclng authontles:
Obligations of the United States, issued by:
Export-Import Bank of the United States ..... . ................. .
Federal Deposit Insurance Corporation:
Bank insurance fund ........................................ .
FSLlC resolution fund ................................................. .
Obligations guaranteed by the United States, issued by:
Department of Defense:
Family housin9 mortgages ............................ '" ............ .
Department of Housing and Urban Development:
Federal Housing Administration ..................... .
Department of the Interior:
Bureau of Land Management
Department of Transportation:
Coast Guard:
Family housing mortgages ................ .
Jbligations not guaranteed by the United States. issued by:
Legislative Branch:
Architect of the Capitol ............ "....... . .............. , ......... .
Independent agencies:
Farm Credit System Financial Assistance Corporation
National Archives and Records Administration
Tennessee Valley Authority ...

-145

... No Transactions.
(. ') Less than $500,000.
Note: Details may not add to totals due to rounding.

This Month

(oo)

r .)

(oo)

-194

93
943

93
797

(' .)

(

)

-82

-30

213

123

131

(' ')

(oo)

176

185

187

1,261
302
23,601

1,261
302
24,543

26,382

27,334

Total, agency securities

Close of
This month

942

2,868

2,681

1,261
302
21,675

951

2,651

2,466

24,682

Table 6. Schedule C (Memorandum)-Federal Agency Borrowing Financed Through the Issue of Public Debt Securities,
May 1994 and Other Periods
[$ millions]
Account Balances
Current Fiscal Year

Transactions
Classification
Fiscal Year to Date

Beginning 01

This Month

I Prior Year

This Year
Borrowing Irom the Treasury:
Funds Appropnated to the President
Interr :', onal Secunty Assistance
Guaranty reserve fund
Agency for International Development·
Intemattonal Debt Reduction
HouSing and other credit guaranty programs
Overseas Pnvate Investment Corporation
Department of Agriculture
Foreign assistance programs
Commodity Credit Corporation
Farmers Home Administration
Agrtculture credit Insurance fund
Self-help hOUSing land development fund
Rural hOUSing insurance fund
Rural Development Administration:
Rural development Insurance fund ..
Rural development loan fund
Federal Crop Insurance Corporation:
Federal crop insurance corporation fund
Rural Electrification Admintstration:
Rural communication development fund
Rural electnficatton and telephone revolving fund
...............
Rural Telephone Bank
Department of Commerce:
Federal ship financing fund, NOAA
Department of Education:
Guaranteed student loans
College hOUSing and academic facilities fund
College housing loans
Department of Energy:
Isotope production and distribution fund
Bonneville power administration fund
Department of Housing and Urban Development:
HOUSing programs:
HOUSing for the ederly and handicapped
Public and Indian hOUSing:
Low-rent public housing
Department of the Intenor:
Bureau of Reclamation Loans
Bureau of Mines, Helium Fund
Bureau of Indian AffairS
Revolving funds for loans
Department of Justice:
Federal pnson Industnes, Incorporated
Department of State
Repatriation loans
Department of Transportation:
Federal Railroad Administration.
Railroad rehablhtatlon and Improvement finanCing funds
Settlements of railroad htlgaltOn
Amtrak corndor improvement loans
Regional rail reorganization program
Federal AViation Administration:
Aircraft purchase loan guarantee program
Department of the Treasury
Federal FinanCing Bank revolVing fund
Department of Veterans Affalls
Loan guaranty revolVing fund
Guaranty and Indemntty fund
Dtrect loan revolVing fund
Vocational rehabilitation revolving fund
EnVIronmental Protection Agency
Abatement. control. and compliance loan program
Small BUSiness Administration
BUSiness loan and revolVing fund

This Year

405

710
60

I This Month

ThI.1!IOnth

405

346

348

346
125
6

354
-9,129

70
4,655

193
24,745

547
14,906

541
15,611

-1,225
1
2,134

66
(")

360

5,771
1
2,910

4,466
1
5,044

4,546
1
5,1)«

561
29

41
2

1,660
5

2,241
34

25
8,099
602

55
8,346
645

55
8,346
632

2,056
154
460

2,056
168
460

2,058
168

-113

-14

C10ae of

31
247
-170

125
16

113

275
40
-2

14
)

(

107

266

3
410

13
2,332

13
2,490

13
2,597

-475

165

8,959

8,484

110

135

5
252

11
252

252

8
-39
2
39

15
-39
2

)

( )

1'1

-1

-2,294

("")

( )

-13,236

-27,207

114,329

103,386

101,092

1,158
612
7

514
183

860

....

( )
( )

1
2

2,018
695
8
2

2,018
695
8
1

3,203

5,667

S.$'

2,464

(

Table 6.

Schedule C (Memorandum)-Federal Agency Borrowing Financed Through the Issue of Public Debt Securities,
May 1994 and Other Periods-Continued
[$ millions]
Account Balances
Current Fiscal Year

Transactions
Classillcation
Fiscal Year to Date
This Month

This Year
30rrowlng lor the Treasury:-Contlnued
Other independent agencies:
E~port-Import Bank of the United States
Federal Emergency Management Agency:
National insurance development fund ...
Pennsylvania Avenue Development Corporation:
Land aquisition and development fund .....
Railroad Retirement Board:
Railroad retirement account .................. .
Social Security equivalent benefit account
Smithsonian Institution:
John F. Kennedy Center parking facilities
Tennessee Valley Authority ................. .
Total agency borrowing from the Treasury
financed through public debt securities issued
iorrowing from the Federal Financing Bank:
Funds Appropriated to the President:
Foreign military sales ................ .
Department of Agnculture:
Rural Electrification Administration ...
Farmers Home Administration:
Agriculture credit insurance fund
Rural housing insurance fund .......... . ......... .
Rural development insurance fund ... .
Department of Defense:
Department of the Navy ............ ..
Defense agencies .......................
. ........ ..
Department of Education:
Student Loan Marketing Association .. .. .. .. .. .. .. .. .. .. .. .. .. .. .... ..
Department of Health and Human Services.
Except Social Security:
Medical facilities guarantee and loan fund ........... .
Department of Housing and Urban Development:
Low rent housing loans and other expenses ...... .
Community Development Grants .....
Department of Interior:
Territorial and intemational affairs .............. .
Department of Transportation:
Federal Railroad Administration ................. .
Department of the Treasury:
Financial Management Service ......
. .................. ..
General ServIces Administration:
Federal buildings fund ...... . ..... .
Small Business Administration:
Business loan and investment fund
Independent agencies:
Export-Import Bank of the United States ...................... .
Federal Deposit Insurance Corporation:
Bank insurance fund
..................................... .
Pennsylvania Avenue Development Corporation ................ .
Postal Service ...............
.. ............................... ..
Resolution Trust Corporation ........................................... .
Tennessee Valley Authority ........................................... .
Washington Metropolitan Transit Authority ............................ .
Total borrowing from the Federal Financing Bank ...... -........ -

252

Beginning of

Prior Year

This Year

Close of
This month

Tills Month

811

161

386

1.197

125

167

2.013

1,977

2,128
2,690

2.128
4.451

2.128
4.703

20
150

-1,171

-13,042

-18,010

183,196

171,325

170,154

-19

-164

-150

4.083

3.938

3.919

-235

-173

22.252

21.959

22.018

-395
-320

-910
-585

-2.600

8.908
26.036
3.675

8.393
25.771
3.675

7.998
25.451
3.675

-49

-48

1.624
-96

1.624
-145

1,624
-145

-4.790

-30

4.790

-1

-6

-25

-1

-54
-16

-52
-35

1.801
131

1,747
116

1.747
115

-1

-28

-1

-30

-72

249

544

1,436

1.648

1.685

-5

-57

-76

670

618

613

-948

-950

5.795

4.847

4,847

150
9.732
31,688
6.325
177

208
9.732
27.402
6.075
665

217
9.473
27,402
4.675
665

129,332

118,389

116,095

(' ')

9
-258
-1.400
-2,294

67
-258
-4.285
-1.650
488
-13,237

-6.660
42
537
-15.758
-1,673
-27,209

.. No Transactions.
(- -) Less than $500.000
Note: Details may not add to totals due to rounding

Note. This table includes lending by the Federal Financing Bank accomplished by the purchase
agency financial assets. by the acquisition of agency debt securities. and by direct loans on
,half of an agency. The Federal Financing Bank borrows from Treasury and issues its own
>curities and in tum may loan these funds to agencies in lieu of agencies borrowing directly
rough Treasury or issuing their own securities

Table 6.

Schedule O-Investments of Federal Government Accounts in Federal Securities, May 1994 and
Other Periods

[$ millions]
Securities Held as Investmenl1
Current Fiscal Year

Net Purchases or Sales (-)

-..
~

Classification

Beginning of

Fiscal Year to Date

This Month

This Year

Prior Yesr

Close 01
This IIIOnIti

This Month

,
I

Federal funds:
Department 01 Agriculture
Department 01 Commerce
Department 01 De1ense-Mllitary
Defense cooperation account
Department 01 Energy
Department of HOUSing and Urban Development:
HouSing programs
Federal houSing administration fund'
PubliC debt secufltles
Government National Mortgage Association'.
Management and liquidating functions fund
Public debt secunt,es
Agency securities
Guarantees of mortgage-backed securities:
Public debt seCUrities
Agency securilles
Other
Department of the Intenor:
Public debt seCUrities
Department of Labor
Department of Transportation
Department of the Treasury
Department of Veterans Affairs'
Canteen service revolVing fund
Veterans reopened Insurance fund
Servlcemen'S group life Insurance fund.
Independent agencies:
Export-Import Bank of the United States
Federal Deposit Insurance Corporation:
Bank Insurance fund
Savings aSSociation insurance fund .
FSLlC resolution fund
PubliC debt securihes
.............
Federal Emergency Management Agency
National flood Insurance fund
National Credit Union Administration
Postal Service
Tennessee Valley Authority
Other
Other
Total publiC debt securitIes
Total agency secuntles
Total Federal funds

... , .........................................

(' ')
(")

1
3

2
13

179

-4
458

-2,020
323

9
4.0Bl

4,360

4,S3a

892

479

-300

5,214

4,801

5.693

-9
-4

9
20

316

3.221
1
191

3.512
1
184

3,537
I

-6

295
(")
7

39
83
3
989

479
-11 ,770
59
962

399
794
70
1.711

2,508
16,590
881
5,773

2,948
4,738
937
5,747

2,987

2
-5

3
-6
-109

-6
-3
-50

38
518
150

39
518
41

41
513
41

432

223

460

360
16

6,432
535

-1,654
431

4,325
1,283

10,397
1,803

10,757
1,818

-207

1,303

-709

828

2,338

2,t31

21
-26
-775
-3
87

-71
248
2,051
502
83
189

-422
326
2,246
-720
53
216

71
2,764
3,027
3,452
853
2,715

2,991
5,104
4,729
939
2,817

3,012
5,078

1,728

2,560

-4

1,216
(")

58,589
21

59,421
17

61,149
17

2,556

1,216

58,610

59,438

81,186

5
27

1,728

1
13

184

4,620
940
6,736

3,954

936
2,904

Trust funds:
Legislative Branch.
Library of Congress
United States Tax Court
Other
The Judlc,ary
JudiCial retirement funds
Department of Agriculture
Department of Commerce
Department of Defense-Military
VOluntary separation Incentive fund
Other
Department Of Defense-CiVil:
Military retrrement fund
Other

-2
(")
(")

(")

3
(")
('.)

1
4
27

3
4
(")

27
195
( )

15
7
( )

212
5

236
195
('")

2J9
191

-5

-30
7

902
-7

844
151

820

815
159

13,169
39

13,159
342

96,690
1,213

105,970
1.213

3,889
39

158

(

109.85\

1.251

able 6, Schedule D-Investments of Federal Government Accounts in Federal Securities, May 1994 and
Other Periods-Continued
[$ millions]
Securities Held as Investments
Current Fiscal Year

Net Purchases or Sales (-)
Classification

Fiscal Year to Date
This Month
This Year

Beginning of

Prior Year

This Year

Close of
This month

This Month

'Ust Funds-Continued
Department of Health and Human Services, except Social Security:
Federal hospital insurance trust fund:
Public debt securities ..... . ............................. .
Federal supplementary medical insurance trust fund ..... .
Other ...
.................. ............... .
Department of Health and Human Services, Social Security:
Federal old-age and survivors insurance trust fund:
Public debt securities ............................. . .............. .
Federal disability insurance trust fund
. . . . . . . . . .. . .................. .
Department of the Interior:
Public debt securities
Department of Justice ........ .
Department of Labor:
Unemployment trust fund ... .
Other ...
. ........... .
Jepartment of State:
Foreign Service retirement and disability fund ..
. ............ .
Other ............................................................ .
Jepartment of Transportation:
Highway trust fund ............. . .
. ............... .
Airport and airway trust fund ......... ................ . .............. .
Other ...........
. ................................................. .
.................. ..
Jepartment of the Treasury
)epartment of Veterans Affairs:
General post fund, national homes .................. . ................ .
National service life insurance:
Public debt securities ............. ................. . ................ .
United States govemment life Insurance Fund .............. .
Veterans special life insurance fund
............... .
:nllironmental Protection Agency .................... .
lational Aeronautics and Space Administration ............... .
)ffiee of Personnel Management:
Cillil service retirement and disability fund:
Pub~c debt securities ................. .
Employees health benefits fund ........ .
Employees life insurance fund ...... . . . . . . . . . . . . .. . ................... .
Retired employees health benefits fund .......... .
1dependent agencies:
.......... .
Harry S. Truman memorial scholarship trust fund
Japan-United States Friendship Commission .......................... .
Railroad Retirement Board ...
. ......................... .
. .......... .
Other ........... .............

-889
-182
12

210
92
108

2,979
3.366
53

126.078
23.268
659

127.177
23,542
755

126,289
23,360
768

2,790
-551

37.353
-2.301

28.937
-1.688

355.510
10,237

390.073
8.487

392.862
7.936

30
67

-151
143

184

202
67

215
67

8.527

3.040
-17

1.350
-18

36.607
53

31.120
46

39,646
36

-25

218
12

202
37

6.662
38

6.905
50

6,880
50

-697
29
-25

-1.987
-489
-87
23

1.914
-2.270
129
-33

22.004
12.672
1.675
209

20.715
12.166
1.559
211

20.018
12.183
1.588
186

r *)

(' *)

-82

-56

-2
-7

-7

-7
14
731

(* *)

4
495
1

11.666
125
1.462
5.477
16

11.692
119
1.473
5.911
16

11.610
118
1.466
5.971
16

-1,801
148
329

-1,219
622
925

-996
556
830

(* *)

312.286
7.268
14.284
1

310,485
7.416
14.613

(* *)

311.705
6.794
13.688
1

1
(* *)

(* *)

-114
102

254
18

11.961
125

53
17
11.849
223

11.847
227

11.587

50.389

50.862

1.058.131

1,096.932

1.108.519

ToUlI trust funds ................................................ .

11,587

50,389

50,862

1,058,131

1,096,932

1,108,519

Ind tolal ................................................................. .

13,316

52,945

52,078

1,116,740

1,156,370

1,169,686

Total public debt securities

-9

r *)
(* *)

-2

(* *)

Note: Investments are in public debt securibes unless otherwise noted .
Note: Details may not add to totals due to rounding .

. No Transattions
• 'J Less than $500.000.

53
17

Table 7, Receipts and Outlays of the U,S, Government by ~onth, Fiscal Year 1994
[$ millions)

Oct.

Classification

Receipts:
Individual Income taxes
Corporation Income taxes
SOCIal Insurance taxes and
contnbutlOns
Employment taxes and
contnbutlOns
Unemployment Insurance
Other retirement contributions
EXCIse taxes
Estate and gift taxes
Customs duties
Miscellaneous receipts

Noy.

Dec.

Jan.

March

Feb,

April

May

June

July

Aug,

Sept.

Fiscal
Year
To
Date

Com.

PI,.
PtriocI
Prior
F.Y.

37.680
2,158

37,634
2.208

54.183
28,239

74,167
3,916

28,107
1,594

29,917
15,574

60,038
20,586

24,384
2,817

346,109
77,092

320&19

29,440
1,046
343
3,597
990
1,708
1,706

31,525
2,773
385
4,808
1,305
1,688
781

33,273
259
423
4,695
1,179
1,584
1,575

35,831
794
358
4,011
1,105
1,526
1,258

32,957
2,664
367
3,249
1,093
1,419
1,424

35,976
522
459
5,285
1,211
1,745
2,418

47,348
2,605
370
4,050
2,378
1,479
2,472

35,749
10,426
364
5,253
1,342
1,620
1,589

282,100
21,089

260,69)

...........

78,668

83,107 125,408 122,966

72,874

93,108 141,326

83,546

801,002

(On·budget) ........................

55,864

58,700

99,714

94,395

46,880

64,611 104,311

55,366

579,840

(ON·budget) , ................ , ......

22,804

24,407

25,694

28,571

25,995

28,497

37,015

28,179

221,162

76.829

74,629 /13,686 IIU16

65,979

83.288 132.017

70.642

719,785

Total-Receipts this year

/"(I(u'-Rc«lpr\ prIOr rear

3,068
34,948
10,603
12,769
13,224

63,l/j

19,32)
3,113
3O,~

8,5)4
11,92\

",~
."

'"''

. ....

(On

~lIdK(1I

55.052

51.215

89.590

90,/27

40,879

57.094

96.307

44.520

5l1,78.'

(all

~lUjKe()

21.776

23,414

24.096

22.589

25.100

26.194

35.709

26.122

205,~

378
158
20

206
219
18

204
190
16

212
179
20

202
177
14

198
386
14

164
182
25

188
224
16

1,751
1,715
142

1,613
1,667

3,312

408

370

337

468

130

552

409

5,986

6,1198

548
133

340
348

237
17

179
156

55
5

288
-426

507
101

278
86

2,431
421

2,m
85!

900
3,993
264

2,263
4,886
277

2,614
3,794
282

974
3,815
244

1,369
3,373
245

1,130
4,264
261

1,342
3,873
231

702
4,206
173

11,294
32,203
1,977

16,819
30,818
1,815

6,634
6.413
5,131

5,357
7,049
5,132

8,626
6,953
5,746

2,944
8,668
4,043

5,835
6,156
5,600

5,959
8,169
6,361

8,098
7,089
4,493

3,150
6,354
4,545

46,605
56,851
41,050

50,398
59,916
4O,IZl

2,987
404
226

2,875
388
208

2,949
390
241

2,678
415
273

2,252
344
265

3,292
372
303

2,691
188
326

3,090
465
263

22,813
2,967
2,105

23,7~

1,568
-217

816
-28

275
572

-892
-12

542
-52

-1,153
69

876
-209

569
93

2,601
217

1,315

23,147

21,796

25,752

18,117

20,943

23,372

23,552

18,530

2.550
1,805
1,710

2,515
3,356
1,723

2,550
2,535
1.492

2,509
1,102
1,269

2,459
1,202
1,221

2,471
1,004
1,561

2,513
2,068
1,263

2,507
2,243
1,158

20,073
15,316
11,398

20,561

1,467

1.700

1,633

1,178

1,694

1,954

1,462

1,630

12,717

12.22'

7,394
7.432

6,626
8,006

7,088
9,319

6,097
7,193

6,202
8,196

7,220
10,069

6,475
8,224

6,982
8,339

54,083

49.13'
59lT

4,650
3,783
2,970

4,838
3.801
2,061

5,846
3.782
3,892

4.170
2,968
1.760

4,213
2,926
2,087

5,293
3,605
2,110

4,533
3,572
5,625

4,623
3,001
298

38,165
27,439
20,803

2.797
-5,060

2.723
-5,060

2,828
-5,094

2,771
-4,429

2,864
-4,525

2,359
-5,109

2,910
-5,059

2,622
-4,501

21,874 19.!~
-38,837 -39.~'

22.546
2,992
-977

22,554
2,998
-7

22.927
2,991
-17

23.097
3,054
-1.559

23,250
3,077
-10

23,297
3,212
"13

23,398
3,231
-1,558

23,252
3,275
-9

184,321 17659:
24,829 22&(
-4,150 -A6Z"

2,645

2,415

2.309

1.564

1,886

2,278

2,246

2,048

Outlays
Legislative Branch
The Judiciary
Executive Office of the President .
Funds Appropriated to the President:
Intemational Security Assistance
IntematlOnal Development
ASSistance
Other
Department of Agnculture:
Foreign aSSistance, special export
programs and Commodity Credit
CorporatIOn
Other
Department of Commerce .
Department of Defense:
Military
Military personnel .
OperatIOn and maintenance
Procurement
Research, development, test. and
evaluation
Military construction
Family housing
RevolVing and management
funds
Other
Total Military
C,Vil
Department of Education .
Departmenl of Energy
Department of Health and Human
Services. except Sooal Security
PubliC Health Service
Health Care FinanCing Administration:
Grants to States for Medicaid
Federal hosp'tal Ins. trust fund
Federal supp. med Ins. trust
fund
Other
SOCIal Secunty Administration
Administration for children and
families
Other
Department of Health and Human
Services. SOCial Secunty·
Federal old·age and SUrviVOrs Ins.
trust fund
Federal disability Ins trust fund
Other
Department of HOUSing and Urban
Development

t34

3,O&i
2,~

-888

175,209 185,m

66,779

\7,391

19,1(!
10.71'

34,611
29.91'

20.11

16 1"

·able 7. Receipts and Outlays of the U.S. Government by Month, Fiscal Year 1994-Continued
[$ millions]

Classification

Oct.

Nov.

Dec.

Jan.

Feb.

March

April

May

June

July

Aug.

Sept.

Fiscal
Year
To
Date

Comparable
Period
Prior
F.Y.

IUtlays-Continued
epartment of the Interior .. ..... .. ..
epartment of Justice .. . .. ........ '"
epartment of Labor:
....
Unemployment trust fund .
Other ....... ... ....... ...... ....
apartment of Stale ....
epartment of Transportation:
Highway tnust fund ... .... ... ....
Other .......... " , , 3partment of the Treasury:
Interest on the public debt ...... ....
....... ........... .......
Other ...
lpartment of Veterans Affairs:
Compensation and pensions - ..... ...
National service life ............ " "
United States government life . , , - ...
....
Other.
Ivironmental Protection Agency .. ' ..
meral Services Administration .. ....
Itional Aeronautics and Space
.dministration ..........................
fice of Personnel Management .......
nall Business Administration .. , .. ...
lependent agencies:
Fed. Deposit Ins. Corp.:
Bank insurance fund .............
Savings association insurance
fund .. ..................... ...
FSLlC resolution fund ........ ...
Postal Service:
Public enterprise funds (offbudget) ..........................
Payment to the Postal Service
fund .... .............. ...........
'lesolution Tnust Corporation
f ennessee Valley Authority ...... ...
)ther independent agencies
distlibuted offsetting receipts:
=mployer share, employee
. ... .. . .. . . .. . ... " "
retirement ."
nterest received by trust funds ......
,ents and royalties on outer
continental shelf lands . ....... , ....
)ther ....
......
. ......
'"

"0'

527
749

600
905

507
773

675
822

499
734

631
1 ,023

489
802

836

4,375
6,645

4,216
6,997

2,710
652
843

2,762
61
586

3,146
673
478

3,044
463
407

3,080
444
360

3,183
26
417

2,369
881
251

2,128
551
320

22,422
3,751
3.664

27,232
2,962
3,803

1,774
1,377

1,601
1,651

1,516
2,224

1,244
1,255

1,271
1,541

1,135
1,791

1,203
1,459

1,434
1,469

11.177
12,767

9,428
11,886

17,638
-102

22,260
75

52}12
983

17.899
590

16,208
4,931

18,122
2,844

18,328
1,207

23,943
666

187,110
11.194

186,590
7,929

1,400
66
2
1,33B
430
239

1,406
57
1
1,705
506
-489

2,748
75
2
1,613
458
384

61
68
1
2,001
456
-658

1,434
57
1
1,61B
430
344

1,463
122
2
1,179
543
231

2,787
72

97
74

2
1,045
440
-549

1,472
439
417

11,396
590
12
11,971
3,702
-82

11,240
465
13
11,583
3,778
265

1,079
3,335
14

1,214
2,879
146

1,191
3.079
49

1,015
3,249
-7

1,029
3,098
27

1,275
3,207
64

986
3,413
52

1,110
3,012
70

8,899
25,273
414

9,452
24,113
581

-182

-1,322

-452

-3,558

-379

-145

-382

-6,368

-4,942

-5

4
8

8
-140

-25
-93

-492
-253

-7

-2

-15

-552

-16
207

-534
-839

-431
1,200

-509

-237

146

194

184

-746

-1,049

-1,957

-1,844

61
7
106
1,705

. ....

. .....

2,471
101
991

23
-74
212
1,402

-1,169
168
2,048

-678
1,780

-439
-18
1,973

23
783
101
1,489

1,474

107
2,678
914
12,862

130
-14,332
1,467
11,851

-2,449 -2,592
-5,173 -36.027

-2,601
-122

-2,592
-458

-2,733
-130

-2,585
-726

-2,557
-5,467

-20,682
-48,463

-20,597
-46,128

-313

-223

-266

-136

-475

-2,040

-1,621

(")

966,291

..... ,

......

-2,572
-359
-21

-461

-145

...

("")

448

1,777
213

tals this year:
'etal outlays

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

124,090 121,488 133,660 107,718 114,440 125,423 123.872 115,600

(On-budget) .. ", •• ",., •....... , ...

100.567

(Off·budget) .. , .................... ,

23,523

'otal-surplus (+) or deficit (-)

.....

96,724 121,977

83,526

88,523 100,259 100,625

89,728

781,931

11,683

24,192

25,917

25,871

184,360

-8,252 +15,248 -41,566 -32,315 +17,454 -32.054

-165,289

24,764

-45,422 -38,381

25,164

(On-budget) ....................... , -44,704 -38,024 -22,263 +10,869 -41,644 -35,648
(Off-budget) ............. ', .........
alaI borrowing from the public

....

'olal-outlays prior year .. . . . . . . ..
(On·budger) . .. ,.
(Off-budget) ...

. ...

. ....

23,247

+3,686 -34,362

-202,091

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

-719

-357 +14,012

+4,379

+71

+3,333 +13,168

+2,308

+36,802

......

4,255

13,995

-6,933

31,633

26,511 -21,801

27,649

146,337

177,852

71,028

125,620 107,355 152.633

...

103.780

....

21,841

82,899 JJ4,477 127.263 124,200 107.605

83,436 116.572

84,925

/\9,720 103.025 101.752

36,061

-2.025

24. 75 7

23,919

24.237

942.052

/\3.!lO

766.420

22,448

2{395

175.632

olal·surplus (+) or defiCit (-) pnor
.'ear .

-48.792 -32,726 -38,947 +29.817 -48.498 -43.974

+7,817 -30.963

-212.266

(On·budget)

-48,727 -32.221 -26.982

+5.202 -48.842 -45.931

-5.445 -38.690

-241.635

+/,727

+29,369

!Off-budget)

...

-65

-505 -11.965 +]4,614

+344

. No transactions .

•) Less than $500,000.
lote. Details may not add to totals due to rounding.

+1,957 +1.1]61

Table 8. Trust Fund Impact on Budget Results and Investment Holdings as of May 31, 1994
[$ millions]
Fiscal Year to Date

This Month
Classification

Securities held as Inves!men" Current Fiscal Year
Beginning 01

Receipts

Outlays

Excess

Receipts

Outlays

Excess
This Year

Trust receipts. outlays, and Investments
held:
Airport
Black lung disability
Federal disability Insurance
Federal employees life and health
Federal employees retirement
Federal hospital Insurance
Federal old-age and survivors insurance
Federal supplementary medical insurance
Highways
Military advances
Railroad retirement
MIlitary retirement
Unemployment
Veterans life Insurance
All other trust

23,306
66,819
221,564
38.444
11,874
8,399
3.242
30,667
25,368
780
3.500

4.074
401
24,829
-1.133
24,241
66,779
184,321
38.165
13,840
8.822
5,210
17,684
22,422
830
2,635

-395
9
-2.398
1,133
-935
41
37,242
279
-1.966
-423
-1,968
12,983
2,946
-50
866

11,055

4&0,485
116.385

413,121
116,385

47,364

40,193

11,055

344,100

296,736

47,364

35,080
20

78,189
20

-43,109

478,113
157

690,766
157

-212,653

35,060

78,169

-43.109

477,956

690,609

-212.653

21.054

-32,054

801,002

966,291

1.261
7.508
26.109
4.453
1.178
1.095
468
6,029
10,500
27
399

510
50
3,275
-328
3.076
8,339
23.252
4.623
1.951
1.129
656
2,249
2,128
107
276

-27
3
-489
328
-1.815
-831
2.857
-170
-773
-34
-189
3}81
8,371
-80
123

Total trust lund receipts and outlays
and investments held trom Table 60
Less: Interfund transactions

62,348
11,100

51,293
11,100

Trust fund receipts and outlays on the basis
of Tables 4 & 5

51,248

Total Federal lund receipts and outlays
Less. Interfund transactions.
Federal fund receipts and outlays on the
basis of Table 4 & 5

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

Less offsetting propnetary receipts
Net budget receipts & outlays

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

482
53
2.786

2}62

2,762

83,546

115,600

3.679
410
22,432

This Month

12.672

12.166

10,237
20.484
318,583
126,078
355,510
23,268
22,004

8.487
21.554
319,431
127,177
390,073
23.542
20}15

317,609
126,289
392.862
23.36il
20.018

11,961
96,690
36,607
13,253
10.784

11,849
105,970
31,120
13,283
11,566

11.847
109,859
39,646
13.193
11,687

1,058,131

1,096,932

l,li1e,Sl1

-165,289

Note: Details may not add to totals due to rounding.

No transactions

Note Inlerfund receipts and outlays are transactions between Federal funds and trust funds
such as Federal payments and contributions, and interest and profits on investments ,n Federal
secunt,es They have no net effect on overall budget receipts and outlays since the receipts side of
such transact,ons IS offset against bugdet outlays. In this table. Interfund receipts are shown as an
adjustment to amve at total receipts and outlays of trust funds respectively.

--:

Clo.. ot .
This Month I

12.183
7,936

22.1n1

'able 9.

Summary of Receipts by Source, and Outlays by Function of the U.S. Government, May 1994
and Other Periods
[$ millions]
Classification

This Month

Fiscal Year
To Date

Comparable Period
Prior Fiscal Year

ldividual income taxes
:orporation income taxes
iocial insurance taxes and contributions:
Employment taxes and contributions ....................... .
Unemployment insurance .........................
. .... '" ...
Other retirement contributions .....
. ........... .
.xcise taxes
state and gift taxes
:ustoms ........................................................ ..
tiscelianeous

24,384
2.817

346.109
77.092

320,659
63,424

35,749
10,426
364
5.253
1,342
1,620
1,589

282.100
21,089
3.066
34.946
10,603
12.769
13.224

260,690
19.323
3.173
30,598
8.534
11.925
11,460

Total ................ , ....................................... .

83,546

801,002

729,785

ationai defense
................................. ..
Iternational affairs
................................. ..
eneral science, space, and technology ..................... .
nergy ..
.. ........ ..
.atural resources and environment ..
griculture ........................... .
ommerce and housing credit ................. .
'ansportation ............. .......... . ............... .
::ommunity and Regional Development ........................... .
jucation, training. employment and social services ........... .
ealth .....................
.. ......... ..
edicare .... ...................... ............
.. ......... ..
come security .... .
)Cial Security .................... ..
~terans benefits and services
jministration of justice .
3neral govemment ............ . ................ .
terest ................. .
ldistributed Offsetting receipts.
. ........................ .

19.509
917
1,415
325
1,519
1,112
1.564
2,869
843
3.841
9.074
11,430
15.796
26.525
1,666
1.277
1.279
17.671
-3,032

183.736
12,462
11.344
3.095
13.696
13.884
-5.966
23.703
7,005
28.555
70.045
93.297
149.848
209.146
24.161
10,141
7,028
133,855
-22,721

193,719
12.861
11.242
3.519
13.670
18.855
-18,572
21.662
6,396
32,573
64.533
84.155
144.976
199.220
23,481
9.987
8.649
133.322
-22.218

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

115,600

966,291

942,052

IECEIPTS

lET OUTLAYS

NOle: Delails may not add 10 totals due to rounding.

Explanatory Notes
the employee and credits for whatever purpose the money was Withheld
Outlays are stated net of offsetting collections (including receipts 01
revolving and management funds) and of refunds. Interest on the PUtt
debt (publiC issues) is recognized on the accrual basis. Federal Cf&:It
programs subject to the Federal Credit Reform Act of 1990 use the C8s/I
basis of accounting and are divided into two components. The P<>rtron 01
the credit activities that involve a cost to the Govemment (marty
subsidies) is included withint.he budget program accounts. The rem&tt.J
portion of the credit actiVities are In non-budget financing actounts
Outlays of off-budget Federal entities are excluded by law from btKIgel
totals. However, they are shown separately and combined with the 00budget outlays to display total Federal outlays.

1. Flow 01 Data Into Monthly Treasury Statement
The Monthly Treasury Statement (MTS) IS assembled from data In the
central accounting system The major sources of data Include monthly
accounting reports by Federal entities and disbursing officers. and daily
reports from the Federal Reserve banks. These reports detail accounting
transactions affecting receipts and outlays of the Federal Government
and off-budget Federal entities, and their related effect on the assets and
liabilities of the US Government Information is presented In the MTS on
a modified cash basis

2, Notes on Receipts
Receipts Included in the report are classified into the following major
categories (1) budget receipts and (2) offsetting collections (also called
applicable receipts). Budget receipts are collections from the public that
result from the exercise of the Government's sovereign or governmental
powers. excluding receipts offset against outlays. These collections, also
called governmental receipts, consist mainly of tax receipts (Including
social insurance taxes), receipts from court fines, certain licenses, and
deposits of earnings by the Federal Reserve System Refunds of receipts
are treated as deductions from gross receipts.
Offsetting collections are from other Government accounts or the
public that are of a business-type or market-oriented nature. They are
classified into two major categories: (1) offsetting collections credited to
appropriations or fund accounts, and (2) offsetting receipts (i.e., amounts
deposited In receipt accounts). Collections credited to appropriation or
fund accounts normally can be used without appropriation action by
Congress. These occur in two instances: (1) when authorized by law.
amounts collected for materials or services are treated as reimbursements to appropriations and (2) in the three types of revolving funds
(public enterprise. intragovernmental, and trust); collections are netted
against spending, and outlays are reported as the net amount.
Offsetting receipts in receipt accounts cannot be used without being
appropriated. They are subdivided into two categories: (1) proprietary
receipts-these collections are from the public and they are offset against
outlays by agency and by function, and (2) intragovernmental fundsthese are payments into receipt accounts from Governmental appropriation or funds accounts. They finance operations within and between
Government agencies and are credited with collections from other
Government accounts. The transactions may be intra budgetary when the
payment and receipt both occur within the budget or from receipts from
off-budget Federal entities In those cases where payment is made by a
Federal entity whose budget authority and outlays are excluded from the
budget totals.
Intrabudgetary transactions are subdivided into three categories:
(1) Interfund transactions, where the payments are from one fund group
(either Federal funds or trust funds) to a receipt account in the other fund
group, (2) Federal intrafund transactions, where the payments and
receipts both occur within the Federal fund group; and (3) trust intrafund
transactions, where the payments and receipts both occur within the trust
fund group.

4. Processing
The data on payments and collections are reported by account symOO
into the central accounting system. In turn, the data are extracted Irem
this system for use in the preparation of the Mrs.
There are two major checks which are conducted to assure ~
consistency of the data reported:

1. Verification of payment data. The monthly payment activity reported ~
Federal entities on their Statements of Transactions is compared to ~
payment activity of Federal entities as reported by disbursing officers
2. Verification of collection data. Reported collections appearing 011
Statements of Transactions are compared to deposits as reported by
Federal Reserve banks.

5. Other Sources of Information About Federal Government
Financial Activities

• A Glossary of Terms Used in the Federal Budget Process, Januar,
1993 (Available from the U.S. General Accounting Office, Gaithersburg
Md. 20760). This glossary provides a basic reference document 01
standardized definitions of terms used by the Federal Govemment in the
budgetmaking process.

• Daily Treasury Statement (Available from GPO, Washington, D.C
20402, on a subscription basis only). The Daily Treasury Statemenll\
published each working day of the Federal Government and provides dala
on the cash and debt operations of the Treasury.

• Monthly Statement of the Public Debt of the United Slale5
(Available from GPO, WaShington, D.C. 20402 on a subscription basis
only). This publication provides detailed information concerning the publ:
debt.
• Treasury Bulletin (Available from GPO, Washington, D.C. 20402, b,
subscription or single copy). Quarterly. Contains a mix of narrative, talje;
and charts on Treasury issues, Federal financial operations, intemat~
statistics, and special reports.

Offsetting receipts are generally deducted from budget authority and
outlays by function. by subfunction, or by agency. There are four types of
receipts however. that are deducted from budget totals as undistributed
offsetting receipts. They are: (1) agencies' payments (including payments
by off-budget Federal entities) as employers into employees retirement
funds. (2) interest received by trust funds. (3) rents and royalties on the
Outer Continental Shelf lands. and (4) other interest (i.e .. interest collected
on Outer Continental Shelf money In deposit funds when such money is
transferred Into the budget)

• Budget of the United States Government, Fiscal Year 19_
(Available from GPO, Washington, D.C. 20402). This publication ,S i
single volume which provides budget information and contains:

-Appendix, The Budget of the United States Govemment, FY 19_
-The United States Budget in Brief, FY 19 _
-Special Analyses
-Historical Tables
-Management of the United States Government
-Major Policy Initiatives

3. Notes on Outlays
Outlays are generally accounted for on the baSIS of checks Issued
electroniC funds transferred. or cash payments made. Certain outlays d~
not reqUire Issuance of cash or checks An example IS charges made
against appropnatlons for that part of employees salaries withheld for
taxes or savings bond allotments - these are counted as payments to

• United States Government Annual Report and Appendix (AvaJi3D"
from FinanCial Management
Washington, D.C. 20227).
results at the summary level.
and appropriation accounts

Service, U.S. Department of the Treasil!
This annual report represents buo;elt'
The appendix presents the individualrr;;e(
at the detail level.

Scheduled Release
The release date for the June 1993 Statement will be 2:00 pm EST July 22, 1994.

For sale by tl1e Superintendent of Documents. U.S. Government Printing
OHice, Washington. D.C. 20402 (202) 783-3238. The subscription price is
$27.00 per year (domestic). $33.73 per year (foreign).
No single copies are sold.

STATISTICAL SUMMARY
Series EE and HH U. S. Savings Bonds
Month of May 1994

May
1994

ISSUES, REDEMPTIONS AND
OUTSTANDING

May
1993

(In millions of dollars)
Sales:

Series EE

$ 725

$ 787

Accrued Discount (Interest
earned and added to Amount
Outstanding) Series E & EE

719

723

Redemptions (Including
Accrued Discount)
All Series

759

627

Cash Adjustments from Series
HH Savings Bonds Exchanges

(I)

Amount Outstanding
Net Change (+l/{-)*

684

Total Outstanding

1994

Series E & EE
Series H & HH

(3)
880
1993

$165,254
11,313

$154,693
10,980

$176,567

$165,673

000

Department of the Treasury

Dill cmAllCI

4'01

ATLANTA GETS LATEST CRIME FIGHTING TECHNOLOGY

WHO:

Ronald K. No~l.,
Assi.tant Secretar,y (&ntoreeMent)
u.s. Treasury Department
Cb.~le. a. Thomson, As.ociate Director
Bureau of Alcohol, Tobacco and Firearms

Tho. . _ staltes, Saecial Agent in Chal'ge
Bureau of Alcohol, Tobacco and Fl~earm.

Kilton E. Nix, ~., Director
aaorvi. Bur.au ot Inv•• tigation
WHAT:

Intr~uction of "Caas.tire", the lat••t technology trom
ATY to capture violent criminals usin9 tirearms.

WHEN:

Thursday, June 23# 1994 at 10:15 a.m.

WHERE:

Georgia Bureau of Inv•• tigation
3121 Pantheraville Road
Decatur, Georgia

DETAILS:

Atlanta will coon be ob~aining the only tully auto~atAd
ballistic comparison system available. eea •• tire i . a
Federal initiativ~ ~hat will benetit State and local
lav enforcement officers throu9h a computer comparison
of reeovere4 bullets utilizinq laser technolQ9Y.

CONTACTS: Bureau of Alcohol, Tobacco and Firearms
&obby 8rowninq
(404)

3l1-6526

Georgia Bureau of Investiqation
.1ohn 8ankhead
(404) 344-2510
Hamilton Dix

u.s.

(202)

LB-906

T~easu~y
62~-~960

Department

DEPARTMENT

THE

TREASURY

omCE OF PUBliC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
June 22, 1994

STATEMENT BY TREASURY SECRETARY LLOYD BENTSEN

"I am concerned by recent movements in the exchange markets. We are carefully
monitoring developments. We continue to be in close communication with our G-7 partners,
and we continue to be prepared to act as appropriate. "
"Ultimately, what is important is the fundamental strength of our economy, and I am
very c.:onfid~nt in the outlook. We .are now in the midst of the first investment-leu recovery
from a low-inflation base in 30 years. And there is increased evidence of recovery abroad. We
share 'with the Fed and with our G-7 partners the common goal of sustaining recovery with low
inflation. "
-30-

LB-907

VBLIe DEBT NEWS
Departlllent 01 the Treasurv •

Bureau of the Public Debt • Washington, DC 20239

FOR IMMEDIATE RELEASE
June 22, 1994

CONTACT: Office of Financing
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 5-YEAR NOTES
Tenders for $11,013 million of 5-year notes, Series P-1999,
to be issued June 30, 1994 and to mature June 30, 1999
were accepted today (CUSIP: 912827Q47).
The interest rate on the notes will be 6 3/4%. All
competitive tenders at yields lower than 6.77% were accepted in
full.
Tenders at 6.77% were allotted 19%. All noncompetitive and
sucessful competitive bidders were allotted securities at the yield
of 6.77%, with an equivalent price of 99.916. The median yield
was 6.74%; that is, 50% of the amount of accepted competitive bids
were tendered at or below that yield. The low yield was 6.70%;
that is, 5% of the amount of accepted competitive bids were
tendered at or below that yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS

Received
$30,282,216

Accepted
$11,013,287

The $11,013 million of accepted tenders includes $856
million of noncompetitive tenders and $10,157 million of
competitive tenders from the public.
In addition, $500 million of tenders was awarded at the
high yield to Federal Reserve Banks as agents for foreign and
international monetary authorities. An additional $1,542 million
of tenders was also accepted at the high yield from Federal
Reserve Banks for their own account in exchange for maturing
securities.

LB-908

'IREASURY
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
June 22, 1994
REMARKS OF ASSISTANT SECRETARY (ENFORCEMENT) RONALD K. NOBLE
PRESS CONFERENCE TO ANNOUNCE UPCOMING VISIT
BY SENIOR LAW ENFORCEMENT OFFICIALS TO
EASTERN EUROPE, THE BALTICS, UKRAINE AND RUSSIA
F.B.I. HEADQUARTERS
The Department of the Treasury has unique law enforcement responsibilities and concerns
with the newly free Republics of Eastern Europe and the former Soviet Union.
We too are concerned with the criminal problems that are besetting these nations and
particularly the deteriorating situation in the Russian Federation. Organized crime is involved
in many activities for which the Department of the Treasury's law enforcement bureaus have
unique abilities to provide support and assistance.
Economically, organized crime severely impedes the progress of financial reform in these
nations. For example, according to a report prepared by the Russian Government, up to 80%
of businesses are paying "protection money" to Russian organized crime groups. This economic
drain contributes to economic weakness and the high rate of inflation. We at Treasury are
deeply concerned about this situation.
Secretary Bentsen visited several of these countries a few months ago, and he has asked
me to bring back recommendations to him on what we can do to help democracy and capitalism
succeed. Fighting crime is undoubtedly one way to do so.
It is important to note that, again according to the Russian authorities, economic crimes
make up a third of the organized crime groups' activities. Embezzlement, bribery, price fixing,
counterfeiting and money laundering are massive problems requiring tough solutions.

LB-909

- 2 -

The Secret Service, the Customs Service, and the Financial Crimes Enforcement
Network will be tasked to help in these areas. Also the Secret Service's expertise can help
deal with the growing counterfeiting problem that besets several of these nations.
In addition, the Federal Law Enforcement Training Center and the Bureau of
Alcohol Tobacco and Firearms have special areas of expertise which we will try to bring
forward to help these nations.
Finally, we are concerned with strengthening the police in these nations in order to
more adequately prevent the risk of diverting weapons systems, including nuclear devices,
into the hands of criminal organizations.
These are major challenges. The Department of the Treasury is committed to
working closely with the Department of Justice, the FBI, DEA and the Department of State
to help these nations and their police address the problems of organized crime and drug
trafficking. We can have no higher priority. This joint effort will signal our foreign
counterparts of our unity and resolve to attack crime affecting U.S. interests anywhere it
might be.
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TREASURY

NEWS

OFFICE OF PUBliC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
June 23, 1994
REMARKS OF ASSISTANT TREASURY SECRETARY (ENFORCEMENT)
RONALD K. NOBLE
GEORGIA BUREAU OF INVESTIGATION HEADQUARTERS
ATLANTA, GEORGIA
Thank you, Director Nix for that kind introduction. It's a pleasure to be here in
Atlanta. I would like to welcome the representatives of Treasury's law enforcement bureaus
who are here today, as well as the representatives of the local law enforcement organizations
that are teaming with the Treasury Department's Bureau of Alcohol, Tobacco and Firearms
in Operation Ceasefire. Before proceeding further, allow me to introduce the gentlemen
behind me who have been instrumental in developing ATF's Operation Ceasefire, and in
bringing Ceasefrre to Atlanta. Charlie Thomson, Associate Director of the Bureau of
Alcohol, Tobacco and Firearms; Forrest Webb, ATF's Ceasefire Program Manager; and
Tom Stokes, Special Agent in Charge of ATF's Atlanta Field Division.
We are all aware that violent crime in this country has reached epidemic proportions.
Those of you who are law enforcement officers, whose job it is to protect our communities,
are reminded daily of the severity of the crime problem. So too are you members of the
press, whose camera lenses and words bear witness to the atrocities that have become so
commonplace on our streets. And, increasingly, ordinary citizens from all walks of life are
being forced to confront this devastating social phenomenon. Over the last three years,
almost one third of Americans either have been victims, or have seen their families
victimized, by crime. Rampant, indiscriminate violence. In our neighborhoods. In our
schools. In our homes. On Monday, it's young men murdered in a drive-by shooting. On
Tuesday, a teacher is shot in the classroom by one of his students. On Wednesday, a little
girl is killed by a stray bullet in the living room of her home. On Thursday, a disgruntled
employee sprays his office with machine gun fire. This is rapidly becoming a country whose
citizens are paralyzed by fear -- a country at the mercy of organized criminal gangs, armed
drug traffickers, and other violent offenders who are ever more shocking in their brutality
and brazen disregard for the value of human life.

LB-91O

The statistics tracking the rise in violent crime are staggering. In the last three
decades, violent crime has increased by 300 percent in this country. A recent Justice
Department study indicates that in 1992, homicides by persons armed with han?guns
increased by 24 percent over the previous five-year average. The number of nonfatal VIolent
crimes involving handguns increased by 50 percent during the same period. This protracted
increase in firearms-related crime has been a focal point of Treasury Secretary Bentsen's
anti-crime strategy, seeking to choke off the supply of arms to violent offenders by targeting
the illicit gun market and scurrilous gun dealers.
The impact of this nationwide rise in crime is vividly illustrated here in Atlanta. In
1993, 31,270 violent crimes were committed in Atlanta and vicinity, placing this geographical
area at the top of the list of communities hardest hit by violent crime. Of course, I could
just as easily have been speaking about Washington, D.C. Or Houston. Or Chicago. We
are dealing with a violent crime plague so profound, so universal, that no metropolitan area,
or rural community for that matter, has been left untouched. Suffice it to say that Atlanta,
and every city in the country, is being ravaged by crime. The citizens of this, and of every,
community are scared. And they are tired of feeling that way.
Today the Treasury Department's Bureau of Alcohol, Tobacco and Firearms, the
Georgia Bureau of Investigation, the police departments of Cobb, Clayton, DeKalb, Fulton
and Gwinnett counties, and the police departments of the cities of Atlanta, College Park,
East Point, and Forest Park are launching a coordinated, innovative campaign to combat
the violence that is decimating our neighborhoods. ATF calls this campaign "Operation
Ceasefire." Ceasefire is an initiative to combat violent crime by marshaling ATF's
responsibility for enforcing the Federal firearms laws, in tandem with cutting edge
technology, to provide support to state and local crime fighting efforts. Earlier this morning,
memoranda of understanding were executed between ATF and these law enforcement
organizations to implement Operation Ceasefire in Atlanta and the surrounding area.
The centerpiece of Operation Ceasefire is this machine you see behind me. It is
called "Bulletproof,1I and it is one of the most significant technological developments in the
area of forensics. Bulletproof is a innovative, new computer-based ballistics analysis system.
As many of you may know, the microscopic examination of projectiles and cartridge casings,
and the science of linking of projectiles and casings to weapons used in criminal activity, has
for years been an integral element of the criminal investigative process. The best evidence
linking a firearm to a specific crime or crimes is matching the recovered projectile or
cartridge casing to the suspect firearm.
Historically, though, this process bas been incredibly arduous and labor intensive.
Because of its built-in inefficiencies, it also has been subject to geographic limitations. It
has been difficult, using conventional ballistics examination techniques, to trace weapons to
~ulti~le criminal incidents taking place across jurisdictional boundaries. Investigations
mvolVIng the same weapons and the same criminal actors tended to proceed on separate
tracks, creating a significant waste of resources.

The Bulletproof system takes the science of ballistics analysis into the next century.
In essence, the Bulletproof system can take a 360 degree picture of the ballistic
characteristics of a projectile, automatically compare the projectile's characteristics with
those of other projectiles stored in the Bulletproof database, and isolate a small universe
of potential matches. This permits firearms examiners to analyze projectile prints more
efficiently. It is estimated that Bulletproof will save countless hours of manual examination
in making identifications. And, because Bulletproof maintains a continually expanding data
base of projectiles recovered from crime scenes and seized weapons, it streamlines the
mechanism for linking a given weapon to multiple crimes. This in tum enhances the
prospect of linking multiple, otherwise separate criminal investigations.
Although the Bulletproof system is in its infancy, early results indicate that this is
going to be an extremely effective crime fighting tool. After only six months of pilot testing
in Washington, Operation Ceasefire, and the Bulletproof ballistics analysis system, have
been instrumental in linking 11 otherwise unrelated homicide investigations.
Soon, Bulletproofs computer-based analytical capability will be available for the
forensic examination of cartridge casings in addition to projectiles. This will make available
for the first time a single, automated system capable of analyzing both types of ballistic
evidence found at crime scenes. The Bulletproof system will be housed at ATF's regional
laboratory here in Atlanta, and here at GBI headquarters. When the pilot program is
expanded to San Francisco later this year, the foundation will be laid for a nationwide,
computer linkup permitting the comparison of ballistic evidence obtained from disparate
regions of the country. The potential benefits of a ballistics analysis examination with
transnational capabilities, particularly in combatting organized crime and drug trafficking,
are obvious.
Operation Ceasefire does not simply encompass the introduction of this cutting-edge
ballistics technology, however. Ceasefire goes further, placing all of ATF's vast crimefighting resources at the disposal of state and local crime-fighting organizations. This
includes direct electronic access to ATF's National Tracing Center -- which provides round
the clock tracing of firearms from the manufacturer to the purchaser, generating valuable
leads for investigators; ATF's Forensic Laboratories -- which conduct firearms, toolmark
and ballistics examinations for ATF and other Federal, state and local law enforcement
agencies; and ATF's Firearms Technology Branch -- which provides expert technical support,
including expert testimony regarding the identification and origin of firearms, and on other
matters relating to firearms and the firearms industry.
ATF will provide direct investigative support by assigning special agents to work
closely with their local law enforcement counterparts. The Ceasefire investigations will be
conducted by a multi-agency task force composed of ATF agents, representatives of the GBI
and representatives of the participating local police organizations.

On behalf of Treasury Secretary Bentsen, ATF Director Magaw, and myself, I would
like to thank the Georgia Bureau of Investigation for devoting laboratory resources to the
implementation of the Bulletproof ballistics analysis system, and for its commitment to the
Ceasefire program in general. I also would like to thank our local crime fighting partners,
the police departments of Cobb, Clayton, DeKalb, Fulton and Gwinnett counties, and the
police departments of the cities of Atlanta, College Park, East Point and Forest Park for
their participation in this initiative. The Atlanta Police Department deserves some special
mention for its leading role in bringing the Ceasefire pilot program to Atlanta. Without the
support of these organizations, Operation Ceasefrre's mandate could not be fulfilled in
Atlanta.
Just as Operation Ceasefire's success depends on the cooperative efforts of ATF and
its local law enforcement counterparts, so too must the overall war against violent crime
involve a coordinated effort at the Federal, state and local levels. President Clinton
recognizes the need for such a collective approach to crime fighting. In fact, he has made
it a defining principle shaping the Administration's anti-crime strategy. This principle is
reflected in the Crime Bill presently in conference deliberations on Capitol Hill. The Crime
Bill includes a wide array of initiatives designed to assist our state and local partners in
attacking crime where it lurks. The Bill would put 100,000 additional officers on our streets,
increasing dramatically our ability to prevent crime and illicit drug activity, to ensure that
criminals are apprehended when crimes occur, and to return to our citizens the sense of
security that has been taken from them. The Bill would ban further manufacture of the
semiautomatic assault rifles and large capacity magazines which have become the murder
weapons of choice of the gangs and the drug traffickers, and which have rendered our police
outgunned and unprotected. The Bill would provide for an enormous increase in the
investment that the Federal government makes in the states for alternatives to
imprisonment, such as boot camps for youth offenders. And, the Bill would provide more
assistance to the states to build and operate more correctional and detention facility space
to get more violent offenders off our streets.
Through these initiatives, the Administration is seeking to structure a cohesive,
comprehensive approach to curbing our nation's crime problem. President Clinton has
urged us to use every resource at our disposal to assist our state and local partners in the
campaign against crime. He has challenged Congress to make this possible by passing a
tough, smart Crime Bill that channels much needed Federal resources into community
policing. Operation Ceasefire exemplifies the President's strategy. We believe that the
results the Ceasefire program generates will be but a foreshadowing of the large scale
impact a cooperative, Federal, state and local approach can have on the crime problem
plaguing this nation.
Thank you.
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DEPARTMENT

THE

TREASURY

NEWS

lREASURY

omCE OF PUBliC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
June 23, 1994

Contact: Michelle Smith
(202) 622-2960

BENTSEN RELEASES TREASURY GATT STUDY
Treasury Secretary Lloyd Bentsen on Thursday said ~ new Treasury study shows the
Uruguay Round of the General Agreement on Tariffs and Trade (GATT) will be a net tax cut
for U.S. consumers and a tax cut for the world as a whole that will amount to nearly $750
billion over the next decade.
"This is a huge global tax cut, the largest nominal dollar tariff cut in history. The United
States will cut $32 billion in tariffs over the next decade as a result of GATT, and much of that
will amount to a net tax cut for American consumers and businesses. Globally, our estimates
are that tariffs will fall on industrial commodities alone by almost $750 billion over the same
period," Secretary Bentsen said.

"This will greatly help sell American products abroad and

create good jobs at home. "
The Treasury study, produced by the Office of the Assistant Secretary for Economic
Policy, shows that one benefit from the Uruguay Round will be lower prices for American
consumers, as well as expanded markets for America's high-value, high-skill export industries.
"It's a win-win proposition for us. American consumers will gain and American jobs

will be created," Secretary Bentsen said.
"There are many benefits from the Uruguay Round: lower taxes on imports and on our
goods sold abroad, new jobs at home, and higher incomes for American families -- collectively
a compelling argument for its ratification," Secretary Bentsen said.
LB-911

-30-

The Uruguay Round Is a Large Tax Cut
U.nited States Treasury
Office of the Asslstant Secretary for Economic Policy
June 23, 1994

The Uruguay Round and Taxes
The Uruguay Round commits almost all
the world's trading nations to reduce tariffs
and expand access to foreign markets. The
Uruguay Round is a tax cut, reducing burdens
on producers and consumers. Consumers and
businesses who purchase foreign consumer
goods, or foreign-produced inputs to their own
production processes, will do so more cheaply
as a result of the Uruguay Round.

promoting initiati ve tends to reduce the
deficit.
Even though U.S. tariffs are technically
taxes on foreign producers, foreign producers
pass a large share of U.S. tariffs on to U.S.
consumers. Treasury estimates that 80 percent
of tariff reductions are received by American
consumers and businesses in the form of lower
prices for foreign-made consumer goods or
forei~n-made industrial inputs. 20 percent are
received by foreigners in higber wages or
after-tax profits. 3

The Cut In U.S, Taxes
. The Office of Management and Budget
proJects l that the agreement will reduce
Unite~ ~tates tax revenues by a net total of
$11 bllhon over the next five years, and by
$20 billion over the subsequent five years. 2
To meet the requirements of the Budget
Enforcement Act, the Administration's
proposed implementing legislation for the
Uruguay Round will include offsets to match
the notional net reduction in revenues
resulting from tariff reductions. A portion of
the tax cut for Americans contained in the
Round's tariff reductions will be offset by
spending cuts. Thus. the implementing
package, taken as a whole, is a substantial net
tax cut for the U.S.
Furthermore, the Uruguay Round is a
powerful growth-promoting force for the U.S.
and the world economy. Any such growth1For scoring purposes, as required under the Budget
Enforcement Act.
2Note that this net estimate includes, for example,
offsets from higher income and corporate tax
collections as businesses that find they can purchase
imports more cheap\ y real i ze hi gher profi ts or pa y
higher wages.

The Cut In Worldwide Tariffs
!~enty-.six of the most important
partiCipants an the Uruguay Round made
specific quantitative estimates of their
reductions in tariffs on industrial
commodities: th~se commitments average 3
percentage POlOts on covered trade in
industrial products-excluding intra-European
Union and intra-NAFf A trade.

These 26 participants account for the bulk
of tr..Jie, and the overwhelming bulk of the
cuts in tariffs attributable to the Round.
Covered trade in industrial commodities of
these 26 participants is projected to amount to
$2.2'trillion in 1995.
Tariff cut commitments range from 15
percent on covered industrial trade for India
3Note that just as foreign producers benefit to a degree
from a reduction in tariffs charged by the U.S., so U.S.
exporters benefit to a degree from a reduction in tariffs
charged by foreigne~. The U.S. is a low tariff country.
The U.S. cuts Its tanrrs by less, in percentage terms,
than foreigners cut theirs. Thus the benefits to U.S.
producers' from f~reign tariff reductions are larger than
foreIgn producers benefits from u.s. tariff cuts.

and 12 percent for Mexico to 0.1 percent for
low-tariff Singapore and to zero for free-trade
Hong Kong. The European Union, for
example, offered to cut its tariffs on covered
industrial trade by 2.3 percentage points. The
U.S. offered a cut in its tariffs on covered
industrial trade of 1.6 percentage points. And
Japan offered to cut its tariffs on covered
industrial trade is 2.5 percentage points.
Other participants have not yet calculated
the tariff reduction value of their
commitments. We project that their tariff cuts
will, when measured in percentage-point
reductions on covered industrial trade, match
those of the 26 major participants who have
reported offers.

Offered Tariff Cuts, In Percentage
Points, on Covered Industrial Trade
India
Argentkla

Mexico
New Zealand
BrazU
AustraBa
Thanand
Chile
Korea
South Africa
Iceland
Austria
Turkey
Canada
Malaysia
Rnland
Japan
Philippines
Norway
European Union
Sweden
United States
SwItzerland

15.0

13.3
12.1
11.6
11.5
10.7

9.9
9.8
9.4
8.2
6.8

4.7
4.1
3.6

2.9
2.5
2.5
2.4
2.3
2.3
1.7
1.6
1.0

Venezuela

0.4

Singapore
Hong Kong

0.1
0.0

Thus, world-wide, the implementation of
the Uruguay Round agreement wi.llle~d to a
three percentage poin~ redu~tlOn lD the
average tariff on covered mdustnal trade. We

also project that world trade will grow,
measured in nominal values, at a pace of 7
percent per year, over the next decade.
Based on these projections, the total of
tariff reductions for the world as a whole, over
the next ten years, will be $744 billion on
industrial commodities alone. 4

OmlHed Benefits
Note that this is a conservative estimate.
It does not take account of reduced tariffs in
agriculture, or in other seCtors. Nor does it
take account of the fact that a failure to ratify
the GATT might well lead to a situation
considerably worse than the relatively lowtariff status quo.
Moreover. the Uruguay Round includes
major reductions in non-tariff barriers: quotas
that keep American agricultural products out
of Europe or Japan~ restraint agreements that
freeze market shares at past levels, and
penalize productive exporters; restrictions on
protection for intellectual property, and
reduced barriers to trade in services as well.
Yet these benefits are an extremely important
part of the Uruguay Round.
One estimate places the val ue of one of
these additional components-the increase in
export revenues from protection of U.S.owned intellectual property-at more than $11
billion a year for the U.S. alone in 2004.
Thus, $744 billion over ten years should
be v iewed as a lower estimate of the
magnitude of the Uruguay Round worldwide
tax cut. And even this-relatively
conservative-estimate ranks the Uruguay
Round agreement as one of the largest
international tax cuts in history.

4Assuming that one-tenth of the cuts in average tariff
rates are implemented in each of the next ten years.
Note that because of slow inOation in the price level,
the total ten-year tariff cut is smaller when measured in

1994 dollars-approximately $60 billion-and larger
when measured in dollars of 2004's purchasing
power-$800 billion.

The Umauay Round Is a Lame Tax Cut
Fact Sheet

Office of the Assistant Secretary for Economic Policy
U.S. Treasury
June 23, 1994

The Uruguay Round is a very substantial reduction in the taxes-tariffs-on
international trade:
• The largest 26 participants in the Uruguay Round have promised an average
three percentage point cut in tariffs on covered trade in industrial
commodities-which will amount to $2.2 trillion in 1995. These 26
participants together account for more than 85 percent of world trade.
•

We estimate that the total worldwide tariff cuts for industrial commodities
alone will amount to $744 billion over the next decade-a $744 billion tax
cut.

•

This calculation leaves out market liberalizations in agricultural trade; estimates of
world-wide agricultural tariff reductions vary, and are only a small part of the
agricultural trade benefits of the Uruguay Round which focus on expanded market
access and diminished non-tariff barriers. This calculation also takes no account of
service-trade liberalization, or of intellectual property protection.

•

Thus this calculation does not account for the Uruguay Round's stimulus to
worldwide entrepreneurship and growth.

U.S. producers and consumers will receive their share of this world-wide tax cut:
•

OMB projects, for scoring purposes required by the Budget Enforcement
Act, that the Treasury will collect $11 billion less in revenues over the next
five years, and $20 billion less over the subsequent five years.

•

Since the revenue offsets under the Budget Enforcement Act will include
spending cuts, the Uruguay Round is a net tax cut for American consumers
and producers.

U.S. consumers and purchasers see lower prices on imports from reduced tariffs.
•

U.S. producers will benefit from cuts in forei2n tariffs, which tend to be
higher than-and are cut by more than- U.S. tariffs.

DEPARTMENT

THE

lREASURY r~·······::. 'F

TREASURY

NEW S

.._________&i~;;j·':~r:~'~~~-V___________
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
June 21, 1994
STATEMENT OF
TREASURY DEPUTY ASSISTANT SECRETARY
SUSAN B. LEVINE
BEFORE TIlE SUBCOMMITIEE ON INTERNATIONAL DEVEWPMENT,
FINANCE, TRADE AND MONETARY POllCY
OF THE HOUSE COMMl'ITEE ON BANKING, FINANCE AND URBAN AFFAIRS
Mr. Chairman, I want to thank you for the opportunity to address your subcommittee.
You have asked us to testify on the implementation of the World Bank's new initiatives
on information disclosure and on the establishment of the Inspection Panel. Before
commenting on the implementation, I believe it is important to stress that the adoption
of these initiatives, which occurred less than one year ago, is a great accomplishment.
The leadership exercised by this committee, in close cooperation with Treasury and nongovernmental organizations, was essential to these efforts.

And while we well know that there have been problems in implementation, we quite
frankly expected this. These new iIDtiatives will bring a dramatic change to the culture
of the development banks. Such change does not come readily. Today I know you will
hear a number of complaints about problems in implementing these new initiatives. I
will touch on some of those myself. However, it is premature to draw conclusions on
their success, based on the short history to date. What is clearly important is that the
Bank has adopted these initiatives and is in the process of implementing them. I have
assurances from the highest levels of Bank management that they are committed to this
process.

LB-912

2
In this context Treasury is working to make sure that the Bank develops clear guidelines
for staff to assist them in implementing the Bank's policies. I will spend some time in
my testimony discussing what steps management is taki~g, ~n?w?at steps we will
encourage it to take, to ensure that these ground-breaking ImtIatIVes will be
implemented.
Our discussion needs to be divided between the information policy, which has been in
effect since August 26 of last year, and the inspection panel, which will not be
operational until this August 1. I will therefore first discuss the information policy.
The information policy states that "there is a presumption in favor of disclosure, outside
and within the Bank, in the absence of compelling reason not to disclose." The challenge
facing an institution such as the World Bank, which engages in ongoing sensitive
negotiations with governments, will be to manage the dynamic tension between the
"presumption in favor of disclosure" and the "compelling reason not to disclose." Some
of the things the Bank is doing or has plans to do we expect will mitigate this tension.
To facilitate access to information, on January 1 of this year the World Bank opened its
Public Information Center at its Washington, D.C. headquarters, as required under the
new disclosure policy. The information center issues monthly a "Complete List of
Documents" which specifies all documents available and describes how to obtain them.
While the NGO community had the greatest interest in the successful adoption of an
information policy, it is noteworthy that the majority of users of the Public Information
Center have come from the private sector. Businesses interested in World Bank
contracts have recognized the value of having information early in the project cycle. In
its first five months of operation, the Public Information Center received over 5400
requests for information from visitors, by telephone, mail, and fax, and via the Internet.
In addition, the Bank has set up information centers in London and Paris; a center in
Tokyo is expected to be fully operational by the end of this month. World Bank resident
missions in borrowing countries also serve as contact points for information.
Increasingly, documents will also be available on-line, through the Internet system. We
think this is an exciting opportunity and we hope to expand this trend dramatically.
Already, certain early project information documents (the PIDs) can be accessed
electronically for all projects in preparation. There have been 322 electronic inquiries
through May 31.
We know that there have been some difficulties in getting information from the Public
Information Center. In a number of cases, information has been placed in the
information center late. This can preclude fully-informed public consultations at a point
in the project cycle when they could have a substantive impact on the project. In our
work with management, this point is a priority for improvement.

Regarding the Project Information Documents, it must be remembered that these
documents did not exist prior to the adoption of the new disclosure policy and must now
be written for all projects. At this point, I am comfortable that these documents are in
place in the center. The focus now should be on ensuring that they have adequate
coverage and quality. I urge the NGOs to assist us in determining where serious gaps in
substance exist.
The main issue we seem to face with implementation is difficulty in determining what
information is to be released on projects which the Board has not yet approved. Some
requests for factual technical information on projects under preparation have been
refused, we think at times incorrectly. Management has advised that the information
center staff will start providing names of contacts for those seeking additional
information not filed in the information center.
To a large extent, the non-release of certain types of "factual technical information"
comes from ambiguity in the information policy itself. We are currently working with
Bank management to clarify this.
As you may recall, there were serious efforts by NGOs to have the bank make available

the early versions of the appraisal reports, the so-called yellow and green cover staff
appraisal reports. This was not supported by most of the Board. The U.S. took a strong
position in the negotiations that if the entire document could not be released, because of
potential sensitive judgements or other information that might impinge on loan
negotiations, then certainly the factual technical information which provided the basis for
these reports should be released. We succeeded in convincing management and the
Board that all non-judgement information, that is so-called factual technical information,
should be made available.
The rationale for this seems clear to us, namely that informed consultation can happen
only if those being consulted have adequate information. Bank policy clearly states that
such factual technical information should be made available. I quote from the policy
itself: 'There will be instances where the availability of factual technical documents on
projects under preparation can facilitate consultation. In such cases, upon request for
additional technical information about a project, the Country Department Director
responsible will, after consultation with the Government to identify any sections that
involve confidential material or compromise Government/Bank interactions, release
factual documents, or portions thereof, that provide inputs in the project preparation."

The problem, of course, which I am sure will be highlighted by others on the panel, is
that many Bank managers have so far resisted providing the factual technical information
on which early project documents are based. I should point out. that the requests the
Bank has received for factual technical information have often tImes been much too
broad-based. I would advise those seeking information in the future to be specific about
the nature of the information that they are seeking (for example, background of the
implementing agency, alternative energy analyses, etc.).
It is my view that many of the problems will be addressed as the Bank produces its
guidelines for the release of early project documents.

The Bank has already made progress in developing such guidelines. After going through
several months of glitches in implementation - the Arun hydroelectric project in Nepal is
perhaps the best-known case where information did not flow on a timely basis - senior
Bank management issued several advisories to staff about the need to implement
successfully the information policy. The latest, dated June 10, advised Country
Department Directors that "Since the Disclosure Policy emphasizes that the Bank has a
presumption in favor of disclosure, I urge you to encourage staff to be as constructive
and transparent as possible in responding to requests for documents, particularly in
regard to factual technical information. It is critical that the Bank live up to all the
commitments contained in the new policy.... Because determining release of factual
technical documents has proven to involve a set of difficult judgements, we are currently
preparing an Operational Memorandum setting out in more detail the Bank's procedures
for dealing with requests for such information."
I believe that management is working to set the right tone and process for this policy.
Management will have to continue to be vigilant in seeing that its policy is implemented.
These guidelines will hopefully resolve outstanding issues and facilitate full
implementation.
I do want to point out that while there have been lapses in the implementation of the
new disclosure policy, increased access to information has begun to serve its most
important purpose, which is to enhance beneficiary participation in the development of
Bank projects. This is complemented by other work underway to ensure beneficiary
participation in project identification, development, and implementation.

Turning to the World Bank's Inspection Panel, I am pleased to note that it will become
operational on August 1. The creation of such a panel has been heralded by many,
including NGOs, as a remarkable advancement. Members have been selected: they are
Ernst-Gunther Broder (Germany), who will be chairman, Richard Bissell (U.S.), and
Alvaro Umana Quesada (Costa Rica). Mr. Broder brings to the Panel extensive
institutional experience from his work at the World Bank, the Kreditanstalt fur
Wiederautbau (Germany's foreign aid agency), and the European Investment Bank. Mr.
Bissell has an extensive background in the academic and development fields. Mr.
Umana brings to the Panel an impressive history of involvement in environmental issues;
among his· most recent accomplishments, he was responsible for the independent
evaluation of the Global Environment Facility.
The Panel's budget ($1.5 million for FY95) has been set. The Panel has an Executive
Secretary, who is a lawyer and is in the process of drafting administrative guidelines for
the Panel. The Panel itself, however, will have final approval of the administrative
guidelines. I have early assurances that the Panel understands the importance of
consulting with the public on the administrative guidelines.
Some have expressed doubts about the Inspection Panel's independence, accountability,
and potential effectiveness. I believe, however, that as long as the spirit, as well as the
letter, of the resolution establishing the Panel are adhered to, it will fulfill its important
purpose.
As we have seen from implementation of the information policy, it is important early on

to set the right tone for how the panel will conduct its business. The panel has clearly
been set up as the last stop, not the first stop in bringing complaints to the Bank. And
we expect that there will be very clearly defined procedures for bringing complaints to
the Panel. Complainants must first attempt to resolve their complaints through normal
communication with the Bank. However, we believe it will be very important that
potentially aggrieved parties not be prevented from bringing complaints to the Panel.
And therefore we will urge the Panel to be liberal in determining who has standing to
address complaints to it.
As we move into the next phase of implementation of the Bank's initiatives on

information policy and the inspection panel, Treasury will continue to monitor progress
closely. As you have already seen, we are strongly committed to these initiatives, and
know they must be successfully implemented. We appreciate the close partnership of
this committee and the NGO community in working with us to realize the successful
implementation of these initiatives and look forward to the continuation of this
partnership.

UBLIC DEBT NEWS
Departlllent of the Treasury •

Rurcau of the Public Debt • Washington, DC 20239

FOR IMMEDIATE RELEASE
June 23, 1994

CONTACT: Office of Financing
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 52-WEEK BILLS
Tenders for $16,591 million of 52-week bills to be issued
June 30, 1994 and to mature June 29, 1995 were
accepted today (CUSIP: 912794S88).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average

Discount
Rate
5.03%
5.04%
5.04%

Investment
Rate
5.30%
5.31%
5.31%

Price
94.914
94.904
94.904

$1,435,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 57%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS

Received
$49,976,654

Accepted
$16,590,714

$44,263,475
973,179
$45,236,654

$10,877,535
973,179
$11,850,714

4,350,000

390,000
$49,976,654

390,000
$16,590,714

Type

Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS

An additional $130,000 thousand of bills will be
issued to foreign official institutions for new cash.

LB-913

D EPA R T 1\1 E N T

0 F

THE

T REA SUR Y

NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIflNGTON, D.C. - 20220 - (202) 6%2-2960

FOR IMMEDIATE RELEASE
June 24, 1994

STATEMENT BY TREASURY SECRETARY LLOYD BENTSEN

. "Our actions today in cooperation with our G-7 partners and other monetary authorities
reflect a shared concern about recent developments in financial markets. "
. "We· look forward to continued cooperation to maintain the conditions necessary for
sustained economic expansion with low inflation. "
-30-

LB-914

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

FOR IMMEDIATE RELEASE
June 27, 1994

CONTACT: Office of Financing
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $11,006 million of I3-week bills to be issued
June 30, 1994 and to mature September 29, 1994 were
accepted today (CUSIP: 9I2794N42).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average

Discount
Rate
4.19%'
4.20%'
4.20%'

Investment
Rate
4.29%'
4.31%'
4.31%'

Price
98.941
98.938
98.938

$55,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 50%'.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS

LB-915

Received
$57,714,673

Acce12ted
$11,006,141

$52,219,787
1,347 1 051
$53,566,838

$5,511,255
1,347 1 051
$6,858,306

3,152,835

995 1 000
$57,714,673

995,000
$11,006,141

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

FOR IMMEDIATE RELEASE
June 27, 1994

CONTACT: Office of Financing
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $11,033 million of 26-week bills to be issued
June 30, 1994 and to mature December 29, 1994 were
accepted today (CUSIP: 912794P65).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average

Discount
Rate
4.59%"
4.60%4.60%-

Investment
Rate
4.76%"
4.78%4.78%

Price
97.680
97.674
97.674

$180,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 53%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS

LB-916

Received
$43,527,538

Acce:gted
$11,033,187

$36,697,194
1,053,780
$37,750,974

$4,202,843
1,053 1 780
$5,256,623

2,900,000

2,876,564
$43,527,538

2,876,564
$11,033,187

DEPARTMENT

lREASURY

THE

TREASURY

t,J NEW S

omCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.• 20220 • (202) 622-2960

FOR IMMEDIATE RELEASE
Text as prepared for delivery
June 28, 1994

TESTIMONY OF TREASURY SECRETARY LLOYD BENTSEN
BEFORE THE SENATE ENVIRONMENT AND PUBLIC WORKS COMMITTEE
ON SUPERFUND REAUTHORIZATION

Chairman Baucus, Senator Chafee, members of the Committee:
The Superfund is far more than just an environmental issue. It's an economic and
social issue as welL We have identified and listed 1,300 priority Superfund sites. But
fewer than 20 percent of them have been fully cleaned up. For every dollar spent, more
than 25 cents goes to lawyers and transaction fees. The incentives in the system are all
wrong. Instead of getting on with the job of cleaning up Superfund sites, we fight to
keep from cleaning them up. The current system is just not working. We can and we
must do better.
The Administration has spent considerable time over the last year finding what's
wrong with the system and coming up with solutions. I know this committee has devoted
a great deal of attention to the issue.
It has been frustrating. We all brought a number of different ideas and views to
the table. It took a long time for everyone to understand everyone else's positions.
It was a difficult process -- but the final product is better for having had a fair and
open hearing of everyone's views. We've had a lot of help from all the interested
parties, and now we have a Superfund reauthorization proposal that addresses head on
the most serious problems in the existing system.

I want to go over the most important points with you. First, the new allocation
system is a major effort to apportion the responsibility for clean-up fairly and efficiently.
For instance, there is generous funding for orphan shares. That way, one party doesn't
get stuck paying someone else's bill.
(MORE)
LB-917

It provides quick settlement for those who have made only a small contribution to
the problem, for those who generate and transport municipal solid waste, and for parties
who have a limited ability to pay.

In addition, and this is of importance to Treasury, it clarifies liability for lenders,
and for innocent landowners.
I believe this proposal also will take a great deal of the contention out of the
allocation process. For example, small businesses will be out early and without great
expense. The large businesses that run most of the clean-ups will be treated far more
fairly. And we should be able to spend less on litigation and more on cleaning up. That
last point's important, particularly since we've been devoting far far too much to legal
bills. That money ought to be used for cleanup, not for a "lawyers relief act."
What we've fashioned is a more coherent process to determine how to clean up
sites. It will protect our health, and our environment. And it will do more -- it will save
money.
Ask anyone. Our current system is fragmented and inconsistent. Everyone
agrees that we should be able to clean up these sites at a substantially lower cost.
I look at it this way -- these sites are as much an economic hazard as they are a
health hazard. These sites need to be redeveloped so they can add to the economic
well-being of the communities where they're located, not be a drag on them. We need
to put this land back on the tax rolls, back into production doing something constructive
for the economy.
There's one other point I want to make. The Environmental Insurance
Resolution Fund should go a long way to eliminating another source of waste in the
existing system -- the constant wrangling over insurance coverage.
So far, our insurers have spent a great deal of money on Superfund, but just 12
cents on the dollar has gone into clean-ups. Half the money has gone to investigating
claims and fighting coverage, and the rest has gone to defending policyholders.
That's a terrible record. I don't want to be too quick to assess blame because the
legal landscape has been anything but clear.
That's why we came up with the Environmental Insurance Resolution Fund. It
goes a long way toward removing the uncertainty of litigation from the picture. That
allows us to save on the costs of settling coverage claims. And that money can be put to
better use cleaning up communities instead of paying lawyers and consultants.

I know that no one is happy with every aspect of the proposed reauthorization
bill. Noone wants to have to invest scarce resources to clean up the problems of the
past, but it has to be done. An enormous amount of time and effort has been invested
in reaching the appropriate compromises on the difficult and delicate issues we faced.
Everyone in the Administration is committed to streamlining the clean-up process,
cutting costs and getting to more sites.
The time has now come to get on with passing the Superfund reauthorization. I
believe the proposed bill goes a long way to address the shortcomings of the current
system. The administration is happy to support it, and I would urge the committee to
support it also.
Thank you.

-30-

DEPARTMENT

THE

TREASURY

TREASURY (.~~.\)

NEW
S
).t~~ ~/

•..................................

•

17Xq~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622-2960

Contact: Michelle Smith
(202) 622-2960

FOR IMMEDIATE RELEASE
June 28, 1994

BENTSEN TO BRIEF ON NArLES MEETING~

TI~a~ury

Secretary Lloyd Bentsen will brief reporters at :2 p. m. H!!.1l0rrf?~.

Wedncsc!Il./ June 29 in Room 3327, Main Treasury on the upcoming G-7 meetings jn
Naple~"

Italy.

Fr,jj(lv,.ing the Secr~tary's on-the-record bnefing, a semor Treasury 'Jfficial will brief
on background.
r!~ G-7 :neetmgs in Naples will be July

8-10.

Press without Treasury, White House, State Department or Congressional (redcntiais
should contact Treasury's Office of Public Affairs at (202) 622-2960 with the following
inf'ormation: name, date of birth and social security number by 6 p.m. Tuesday.
-30-

LB-918

DEPARTMENT

THE

TREASURY

N· E W S

lREASURYi~\~ -~~
. . . .::.~~fA ..
...
I f

T' '-' .~.
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENfu~E'~N~.W~.·.~W·AS·.·
H·IN·G·T·O·N·,D·.·C.·.·2·02·20·.·(·20·2·)6·2·2-·29·60··
l1li•••••••••••1'•..•)iY~l-:it

78 q

FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
June 28, 1994
REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
FOREIGN POLICY ASSOCIATION
NEW YORK, NEW YORK
Over the weekend, I read a history on Bretton Woods. As you know, it's 50 years
since the first discussions between Britain and the United States on what to do with the
monetary system.
It turns out, at the meeting, somebody had written a verse on a piece of paper.
They found it afterwards. The verse read: "In Washington Lord Halifax once whispered
to Lord Keynes: It's true they have the money bag, but we have all the brains!"
Fifty years later, the money bag is missing. But if anyone finds it, the address to
return it to is: U.S. Treasury Department, 1500 Pennsylvania Avenue, Washington D.C.
I want to talk about the dollar, about the upcoming G-7, and about GATT. But
let me start by describing a personal policy I have.
Every time I go to a city and meet with foreign leaders, I go in with a list of
things American businesses are trying to accomplish in that area.
Some people think that's not Secretarial like. But we have to open markets for
our goods and services. The American people elected us to help create jobs, not to
stand around like a potted plant at a photo op. That's why I do it.
You see, in the 19305, before Bretton Woods, when Henry Morganthau was
Treasury Secretary, one in 30 American jobs depended on trade. One in 30. Today, one
in 13 do. Fifty years from now, when the Treasury Secretary speaks with this group,
he or she will face a situation where probably one in five American jobs depend on
trade.
LB-919

We need to figure out how to get there. We need to figure out how to position
America to compete in a world that 10, 20, 50 years from now won't look anything like it
looks today.
For the past 50 years, we generally followed the same path -- we looked abroad,
and we did so generously. We shared our market -- had it wide open. We shared our
technology. Name some of the big technologies -- TVs, telephones, copiers -- how many
of those were invented in Japan, Korea, or China?
We shared our education system. I meet with President Salinas and Finance
Minister Pedro Aspe of Mexico. Or Finance Minister Domingo Cavallo of Argentina,
who convinced his President Menem, a Peronista, to privatize companies, open markets,
and lower tariffs. Or Chilean Finance Minister Eduardo Aninat, who is bringing an
economic revolution there.
Where did they get their education? American graduate schools.
But where we went wrong is that we made political and military decisions -without too much consideration for responsible economics. Do that too long, you
become a victim to your strengths. You can't be a military and political leader, unless
you're an economic leader. Ask the Russians.
I was at a Bilderburg meeting in France four years ago. A man rose and said:
"Look at the great changes in the world. The end of the Cold War. Europe and Asia
emerging as the world leaders. And America on the decline."
It's a little ironic that four years later, I head to a G-7 meeting in a week-and-ahalf knowing this: that America makes up 40 percent of G-7 GDP, but in the past year
we accounted for 75 percent of its growth.
After 50 years of looking abroad, we've changed. We're transforming. President
Clinton came in and he looked at home, first. The policy is not to ignore foreign affairs.
Let me make that clear. We're not ignoring foreign obligations. But we need to take
care of serious economic problems at home.
Call that self-interest, but we're not staring at $300 billion deficits anymore.
We've cut that by a third.
Call that self-interest, but 3.5 million jobs have been created. These are not
government jobs. The federal payroll is down by 100,000 since 1992, and we'll cut
another quarter of a million. In fact, I said that at a speech last month, and someone
yelled out: "Praise the Lord."

One hundred government programs have been eliminated outright; 200 others
have been cut; for the first time in 25 years, we've cut discretionary spending on the
domestic side -- not just defense.
And these are non-events. Reporters hang onto every word I say on some
subjects, but no reporter ever asked me: "How is Treasury operating with a reduced
staff?" But there are about 6,000 fewer authorized positions at Treasury than the day I
walked in the door.
Call it self-interest, but we've been able to keep inflation low. It was 2.3 percent
in the first five months. Only one other time in the past three decades has it been that
low. We've been able to reduce the government deficit enough to release much needed
capital for private investment in America.
For eight quarters, American business has been investing in equipment at double
digit rates. They've switched from debt to equity. They've refinanced long-term debt at
lower rates. Labor/unit costs have shown very little increases.
There are jobs that won't come back. In previous cycles, they came back, but not
now. We're looking to retrain people to use the new technologies. We need to support
them -- but do it in a way that encourages work.
We've had the best record of economic performance in the G-7. Of course,
looking at some of the markets, you wouldn't know it.
Recently, there's been a great deal of volatility. That's a major concern of mine.
Long-term bond yields usually rise in an economic expansion. I've watched our
lO-year bond yields rise so far this year by more than I thought they would. But our
bond yields haven't risen as much as long-term bond rates in Germany, France, England,
Italy, and Canada. Even in Japan, with their recession, long-term bond yields are up
about a full percentage point since the beginning of the year.
And this time, because of our deficit reduction, the deficit is not the culprit. I've
heard no one blame rising interest rates on the deficit. So, yes, we'll see bond rates
fluctuate, but not in a way that thwarts our recovery.
In the past week, there's been a lot of concern about the dollar. I'm concerned,
too.
This is a difficult issue. It's one you need to watch over time. I've been in close
consultation with Alan Greenspan, Chairman of the Federal Reserve. We've been in
close consultation with our G-7 colleagues.

We believe a stronger dollar is better for our economy and better for the world's
economy.
I know there are people who think we have some strategy in Washington of
driving down dollars. Or using the dollar as some kind of bargaining chip.
Let me say clearly -- and I speak for the entire Administration -- this is not the
case. The dollar is not a tool of our trade policy.
We do care about exporting more. But we want to achieve more exports by
helping American producers, by opening markets, and by encouraging growth in foreign
economies. Not by devaluing our currency.
No country can be indifferent to a fall in its currency, and the recent movements
in the dollar could hurt recovery abroad. But nothing that has happened in the financial
markets shakes my confidence in America's economic recovery and underlying
soundness. Nothing.
I look around the world. And just as we're doing, many countries are
transfonning their economies for the future.
I'll tell you how I can tell. When I went to my first G-7 finance ministers meeting
in London in February 1993, I was the freshman. Now, I'm the second most senior.
When things are going badly, the Finance Minister is the first one over the side.
You really see the transformation process in Russia.
I never thought I'd see the day when half of Russian GDP is produced in the
private sector. I'm encouraged with privatization, because Russia is finally developing
entrepreneurs.
They've made progress on inflation -- down under 10 percent a month, from 20
percent. But that's still way too high. More has to be done.
And more has to be done on the legal environment for businesses. If they want
to attract foreign investments, they need enforceable contract laws and a tax system that
encourages investment.
The Russians will determine Russia's future. Sometimes there will be setbacks.
After the election, the Russian Prime Minister Chemomyrdin said good-bye to the
romanticism of the marketplace.
. After th~t I ha~ deep concerns. But I've seen a reversal on his part. Reform
contmues. It WlIl contmue. At the G-7 we'll be talking about that.

Japan has tried to transform. They're in the process of changing governments for
the fourth time, since I've been in office. I don't think they ever faced a recession like
this one.
Japan's economic outlook is not as bad as it was last year. But consumer
spending has only just begun to strengthen. Private investment is still falling. Recovery
must be led by domestic demand.
At the G-7 meeting, we'll again be encouraging Japan to stimulate their
economy. And they've committed to reducing their trade imbalance with other countries,
especially us.
No way can we lower our trade deficit, unless we solve our problem with Japan.
The trade deficit is one of our most serious domestic problems. And we're going to be
working with Japan on this. In terms of market openness, Japan is not there. And they
know it.
The Europeans are trying to transform. Since President Clinton took office, the
Bundesbank has dropped interest rates more than 3.5 percentage points.
A moderate recovery is under way. But it's not strong enough to reduce the
unemployment lines. When you face 12 percent unemployment, they must structurally
change. And they know that.
I was at the OECD earlier in the month. They're preparing specific policy
recommendations individual countries can use to get people back to work.
Look at the rest of the world. Look at the emerging markets. Look at Latin
America. Look at the transformation of their economies, as they try to produce solid
growth, and lower inflation, and restructure international debt, and reduce budget
deficits.
Of course, if every country reshapes itself, if every country does what's in its own
self interest -- some say that will lead to protectionism. That will lead to walls. That
will lead to friction. That will bring us back 60 years to Smoot~Hawley, when we had
tariffs in this country of 55 percent.
I don't buy that. Anybody who tells you that probably never spent a day in his life
in another country in recent times.
Sure you're going to have problems. You're going to have arguments. But I'm
optimistic about the world, because there isn't one country calling the shots anymore.
Opportunities are all over the globe, particularly in the emerging world.

By the year 2000, even leaving Japan out, 75 million households in Asia will be
middle-income households.
Where was the fastest growing car market last year? Not North America. Not
Europe. Leaving out Japan, it was Asia. Who would have thought when you ask
smokestack Detroit where their next hot car market will be, they'd say India?
I was in Asia in January. When you're standing on a new bridge in Shanghai, or
you're watching in Bangkok businessmen use cellular phones because the traffic is so
horrible it's easier to call than to meet -- you realize what the California Gold Rush in
the 1800s must have looked like.
One of the biggest problems emerging countries face is infrastructure -- building
roads, bridges, water plants, airports. Over the next decade, in Asia, they'll be spending
a trillion dollars in infrastructure.
In March, I hosted a meeting of 18 Finance Ministers from the Asia-Pacific area.
An APEC meeting. We had much to talk about, insofar as encouraging private sector
investment in infrastructure projects.
We agreed to have a conference on the topic, and we have found since then that
there is so much interest, we are having not one, but two conferences. In Jakarta. And
in Beijing.
The governments will be the facilitator, but the private sector will be the ones
doing the talking -- as it should be.
Where do we go from here? I think free trade agreements are the avenue. It's
no longer a question of will we do them. It's a matter of when, and how, and who's
next?
We learned two lessons from NAFfA One, we learned Americans have serious
concerns when we sign up for free trade agreements. They need to be fair. Not just
free, but fair.
Two, v:e le~ed they work. This year, with NAFfA, American exports to Mexico
are up. MeXIcan Imports to America are up. That's fair.
Next up is GATT. It'll cut global tariffs by one-third. It's worth five NAFfAs to
us -- that's how big it is.

Treasury will release a study this week that shows GAIT will create 500,000 jobs
in our country. Ten years from now, we think the U.S. will export an extra $150 billion
per year because of GAIT. And as a result of GATT the average family of four will see
its wages boosted by $1,700 a year or more.
Yet I have the Chancellor of the Exchequer from England, I have the Finance
Minister of France, I have the Finance Minister of Germany -- all calling me and saying:
"Lloyd, is it possible? Is it possible that the United States would not ratify GAIT?"
They're asking because there's a catch to GATT. GAIT will take $11 billion in
lost revenues from the budget. And under the budget rules, we have to make that up.
We get no credit that once business expands because of GAIT more revenues
come in. No credit that over the next decade, because of the increase in business, this
could reduce the deficit by $60 billion.
They don't have such provisions in the budgets of England, France, and Germany.
Only us.
Having been in the Senate, I know what happens if you waive the budget for
GATT. It's a slippery slope down.
I tell those finance ministers, it'll pass. We'll find the money. It will be tough,
but we'll find it. We'll find it because America's first priority is to get our economy on a
sound basis. To create jobs. And to stop the red ink. Isn't that what GATT does? It
creates jobs, and it reduces the deficit.
We've just come full circle, haven't we? Domestic and foreign policy have just
united. I'm proud to be a part of that.
Will we see setbacks in the world? Of course. Will transformations bring
hardships? Of course. But if we make the right economic choices now, America will see
a world where commerce is king.
I'll end with this. Earlier this month, I was with the President in Europe for the
D-Day Ceremonies. What a moving experience, and a great honor to be there.
And I thought, what would the world be like today, if instead of having sent
soldiers and airmen we could have sent to Europe planes and ships filled with consumer
goods? That's the kind of world I want in the future.
-30-

TREASURY .N~e W S
OmCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220 • (202) 622-2960

CONTACT:

FOR RELEASE AT 2:30 P.M.
June 28, 1994

Office of Financing
202/219-3350

TREASURY'S WEEKLY BILL OFFERING

The Treasury will auction two series of Treasury bills
approximately $24,000 million, to be issued July 7,
1994. This off@ring will result in a paydown for the Treasury of
about $1,925 million, as the maturing weekly bills are
outstanding in the amount of $25,929 million.
to~aling

Federal Reserve Banks hold $6,360 million of the rnaturing
bills for their own accounts, which may be refunded within the
offering amount at the weighted average discount rate of accepted
competitive tenders.

Federal Reserve Banks hold $2,152 million as agents for
foreign and international monetary authorities, which may be
refunded within the offering amount at the weighted average
discount rate of accepted competitive tenders. Additional
amounts may be issued for such accounts if the aggregate amount
of new bids exceed~ the aggregate amount of maturing bills.

Tenders for the bil15 will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, washington , D. C. This offering of Treasury securities
is governed by the terms and conditions s~t forth in the Uniform
Offering Circular (31 CPR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of the new securities are given in the
attached offering highlights.
000

Attachment
LB-920

HIGHLIGHTS

TREASURY

rSSUED

OFFER~NGS

JULy

~E~LY

1994

'B-1'L..L...S

June

28,

1994

Offering Amount .

$12,000 million

Description of Offering:
Term and type OT security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Currently outstanding
Minimum bid amount
Multiples

91-day bill
912794 N5 9
July 5, 1994
July 7, 1994
October 6, 1994
April 7, 1994
$12,823 million
$10,000
$ 1,000

182-day bill
912794 P7 3
July 5, 1994
July 7, 1994
Janua:r:y 5
1995
July 7, 1994
I

$10,000
$ 1,000

The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Competicive bids

Accepted in full up to $1,000,000 at the aVPlage
discount rate of accepted competitive bids
(1)
l"'ust be expressed as a discount rate wi th
two decimals, e.g., 7.10%.
(2} Net long position for each bidder must l'l'
reported when the sum of the total birl
amount, at all discount rates, and che r;cL
long position is $2 bilJlon or greatcl"
(3)
Net long position must be det.ermined a,: ot
one half-hour priCJr to the closing lim,.:" fen
receipt of competitive tenders.

Maximum Recognized Bid
at a Single Yield

35% of public offering

Maximum Award

35% of public offering

Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms

Prior to 12:00 noon Eastern Daylight Savinq Lilll(~
on auction day
Prior to 1:00 p.m. Eastern Daylight. Savill'] Lime
on auction day
Full payment wi th t.ender or by Chdl"ge I.e.> a fu nri:;
account at a Federal Reserve Bank on j ssu" dd t"

lRI~ASURY

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C. • 20220 • (202) 622-2960

FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
June 29, 1994

t •. '

.) t)

STATEMENT OF TREASURY SECRETARY LLOYD BENTSEN
BACKGROUND SESSION ON G-7 SUMMIT IN NAPLES, ITALY
WASHINGTON, D.C.
This will be my eighth visit with the finance ministers and our second summit. In
Naples, we'll look at our progress to date and see where we go from here.
We're beginning to see signs of economic renewal in the G-7, Eastern Europe,
and Russia. We're encouraged by that. But our major concern continues to be
economic growth.
We're in much better shape than we were in Tokyo, when many of the G-7
economies were still deteriorating. The strategy we put in place last year is working -for the U.S. to cut our budget deficit, for Europe to cut interest rates, and for Japan to
stimulate its economy.
As a result, G-7 economies will grow 2 1/2 percent this year, vs. growth of less

than 1 percent last year.
The United States has done particularly well. We account for 40 percent of G-7
GDP, but 75 percent of its growth. We've added almost 3 1/2 million jobs. And we're
on course to have the second lowest budget deficit among the group in 1995.
Europe has begun a moderate recovery. They still face 12 percent unemployment
rates, but hopefully that will change, and the sooner the better.
In Japan, we're hopeful that the worst of the slowdown is over. I'm optimistic
that over time we'll make substantial progress in opening Japan's market.
And I'm encouraged by the underlying fundamentals. G-7 inflation is rising at a
slower rate than at any time since the early 1960s. Long-term interest rates are up,
because expectations of a stronger recovery have taken hold. But at this point, I don't
see the rise in bond yields threatening growth.
LB-921

-2-

Beyond gro\\1h, there will be a heavy emphasis on jobs. The President feels very
strongly on this one. In Tokyo, he urged that the G-7 hold a summit on jobs. We did in
Detroit. There, we committed to take on the structural aspects of unemployment, and
we've reached a consensus on how to do so -- more flexibility in labor markets,
investment in education and training, open trade policies, and support of economic
policy.
I'm also encouraged because between Tokyo and Naples, we accomplished what
some thought we couldn't. We successfully completed a GATT agreement.
Russia will again be an important area of discussion. A great deal has happened
between the Tokyo and Naples summits. We're seeing tangible signs of progress.
Inflation is down and privatization continues at a fast clip. Some of that is due to the
assistance strategy we set up in Tokyo and the work the IMF is doing. We've worked
hard with the IMF and Russia to make that relationship work.
But Russia must do more to stabilize its economy. We'll talk about that. We'll
talk about initiatives for several of the ex-Soviet states. And we'll talk about how the
IMF can continue to play an active, constructive role.
In fact, we'll be talking about all of the international economic institutions -- bow
they can cooperate, and their role in the future of transition economies.
Before I open it up to questions, I want to repeat something I said last night in
New York. I'm concerned about the dollar.
This is a difficult issue. It's one you need to watch over time. I've been in close
consultation with Alan Greenspan. We've been in close consultation with our G-7
colleagues.
We believe a stronger dollar is better for our economy and better for the world's
economy.

-30-

DEPARTMENT

THE

TREASURY

NEWS

OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220. (202) 622·2960

TRANSCRIPT OF PRESS BRIEFING BY
TREASURY SECRETARY LLOYD BENTSEN
AND A SENIOR TREASURY OFFICIAL
ON G·7 SUMMIT IN NAPLES, ITALY
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
WEDNESDAY, JUNE 29, 1994

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: 22

Author(s):
Title:

Date:

Transcript of Press Briefing by Treasury Secretary Lloyd Bentsen and a Senior Treasury
Official on G-7 Summit in Naples, Italy

1994-06-29

Journal:

Volume:
Page(s):
URL:

Federal Reserve Bank of St. Louis

https://fraser.stlouisfed.org

U'l

C\I
C\I
<0

C)I

federal financing
WASHINGTON, D.C

20220

S
June 30, 1994

FEDERAL FINANCING BANK
Charles D. Haworth, Secretary, Federal Financing Bank (FFB),
announced the following activity for the month of May 1994.
FFB holdings of obligations issued, sold or guaranteed by
other Federal agencies totaled $116.1 billion on May 31, 1994,
posting a decrease of $2,293.7 million from the level on
April 30, 1994. This net change was the result of a decrease in
holdings of agency debt of $1,65B.4 million, a decrease in
holdings of agency assets of $716.3 million, and an increase in
holdings of agency-guaranteed loans of $B1.0 million. FFB made
14 disbursements during the month of May, and refinanced ten REAguaranteed loans. FFB also received 20 prepayments in May.
Attached to this release are tables presenting FFB May loan
activity and FFB holdings as of May 31, 1994.

LB-922

N
0

C\I
(fJ
(fJ

C\I
C\I
<0

C\I

u..
u..

Page 2 of

FEDERAL FINANCING BANK
MAY 1994 ACTIVITY

AMOUNT

BORROWER

DATE

OF ADVANCE

FINAL

MATURITY

INTEREsr
RATE

GOVERNMENT - GUARANTEED LOANS
GENERAL SERVICES ADMINISTRATION
GSA Refinancings
ICTC Building
Foley Square Courthouse
Memphis IRS Service Cent.
Foley Services Contract
Foley Services Contract
HCFA Headquarters
Atlanta CDC Office Bldg.
Oakland Office Building
Foley Square Office Bldg.

5/10
5/16
5/18
5/18
5/19
5/20
5/20
5/23
5/25
5/26

$7,908,784.83
$9,102,035.40
$15,645,628.00
$4,228,415.49
$356,464.00
$393,865.52
$5,494,034.00
$148,716.00
$1,147,951.00
$9,430,667.00

3/25/05
7.243% SIA
11/2/26
7.678% SIA
12/11/95 5.804% SIA
1/3/95
5.066% SIA
12/11/95 5.746% SIA
12/11/95 5.642% SIA
6/30/95
5.331% SIA
9/1/95
5.487% SIA
9/5/23
7.545% SIA
12/11/95 5.831% SIA

$2,735,266.95
$3,216,546.29
$4,590,079.80
$1,842,929.13
$1,884,829.30
$2,378,001.10
$1,610,186.74
$2,208,449.35
$3,343,638.76
$8,134,388.05
$11,471,000.00
$50,000,000.00
$105,000.00
$181,000.00

9/30/94
9/30/94
9/30/94
1/3/17
1/3/17
1/3/17
1/3/17
1/3/17
12/31/19
9/30/94
12/31/25
7/1/96
1/3/22
12/31/14

RURAL ELECTRIFICATION ADMINISTRATION
+Allegheny Electric #908
+Allegheny Electric #908
+Allegheny Electric #908
+E. Iowa Coop. #909
+E. Iowa Coop. #909
+E. Iowa Coop. #909
+E. Iowa Coop. #909
+E. Iowa Coop. #909
+E. Iowa coop. #909
+Northwest Iowa Power #907
Anoka Electric Coop. #377
Oglethorpe Power #335
Alabama Electric #334
Guam Telephone Auth. #371

S/A is a Semi-annual rate:
+ 306e refinancing

5/13
5/13
5/13
5/13
5/13
5/13
5/13
5/13
5/13
5/13
5/16
5/17
5/18
5/25

Qtr. is a Quarterly rate.

4.696% otr.
4.696% otr.
4.696% otr.
7.511% otr.
7.511% otr.
7.511% otr.
7.511% otr.
7.511% otr.
7.541% otr.
4.696% Qtr.
7.564% otr.
6.164% otr.
7.334% otr.
7.399% otr.

Page 3 of 3

FEDERAL FINANCING BANK
(in millions)
Program
Agency Debt:
Department of Transportation
Export-Import Bank
Resolution Trust Corporation
Tennessee Valley Authority
U.S. Postal Service
sub-total*
Agency Assets:
FmHA-ACIF
FmHA-RDIF
FmHA-RHIF
DHHS-Health Maintenance Org.
DHHS-Medical Facilities
Rural Electrification Admin.-CBO
Small Business Administration
sub-total*
Government-Guaranteed Loans:
DOD-Foreign Military Sales
DEd.-Student Loan Marketing Assn.
DEPCO-Rhode Island
DHUD-Community Dev. Block Grant
DHUD-Public Housing Notes
General services Administration +
DOl-virgin Islands
DON-Ship Lease Financing
Rural Electrification Administration
SBA-Small Business Investment Cos.
SBA-State/Local Development cos.
DOT-Section 511
DOT-WMATA
sub-total*
grand-total*
*figures may not total due to rounding
+does not include capitalized interest

May 31, 1994

664.7
4,847.1
27,402.3
4,675.0
9,473.1
47,062.2

April 30, 1994

664.7
4,847.1
27,402.3
6,075.0
9,731.5
48,720.6

Net Change
5/1/94-5/31/94

0.0
0.0
0.0
-1,400.0
-258.4
-1,658.4

FY '94 Net Change
10/1/93-5/31/94

664.7
-947.5
-4,285.4
-1,650.0
-258.4
-6,476.7

7,998.0
3,675.0
25,451.0
30.9
45.0
4,598.9
1.2
41,800.0

8,393.0
3,675.0
25,771.0
30.9
46.2
4,598.9
1.4
42,516.3

-395.0
0.0
-320.0
0.0
-1.2
0.0
-0.1
-716.3

-910.0
0.0
-585.0
0.0
-6.4
0.0
-1.6
-1,502.9

3,919.1
0.0
0.0
115.1
1,746.5
1,902.0
22.2
1,479.6
17,418.6
69.2
542.2
15.7
0.0
27,230.2
=::::=======
$116,092.4

3,937.6
0.0
0.0
115.8
1,746.5
1,855.8
22.2
1,479.6
17,359.5
70.2
546.1
15.9
0.0
27,149.2

-18.6
0.0
0.0

-164.3
-4,790.0
-30.4
-16.2
-54.5
316.3
-0.7
-48.7
-234.6
-21.2
-34.2
-1.2
-177.0
-5,256.8
==========
$-13,236.4

-0.6
0.0

46.2
0.0
0.0

59.1
-1.0
-3.9

-0.2
0.0

81.0

==:=-======

$118,386.1

$-2,293.7

DEPARTMENT

THE

TREASURY

NEW
S
...........................~~'~~~f:·~~.V.............................
'fREASURY (.~.. :. .~. ~r

OFFICE OF PUBUC AFFAIRS .1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960

Contact: Michelle Smith
(202) 622-2960

FOR IMMEDIATE RELEASE
June 30, 1994

BENTSEN ANNOUNCES BENEFITS TO U.S. ECONOMY FROM GATT
Treasury Secretary Lloyd Bentsen on Thursday said a new Treasury study shows
passage of the Uruguay Round will generate hundreds of thousands of U.S. johs and extra
income for American families.
"The study tells us that over the next decade passage of the Round will increase
exports about $150 billion, create about 500,000 new American jobs and increase America's
income by about S1,700 per family per year," Secretary Bentsen said.
The Treasury study on the Uruguay Round of the General Agreement on Tariffs and
Trade was produced by the Office of the Assistant Secretary for Economic Policy. It shows
that expanded protection for intellectual property and other improvements in the trade regime
for services will further boost American exports, national product and income. Additionally
it projects that increased investment due to expanded markets will produce gains in U.S.
standards of living.
"Our studies show that the expected boost in U.S. employment will be primarily in
good, high-wage, high-skill jobs. Few legislative actions could do as much for the wellbeing of the average American as ratifying the Uruguay Round," Secretary Bentsen said.

-30LB-923

DEPARTMENT OF THE TREASURY
WASHINGTON

Benefits from GATT's Uruguay Round for the American Economy
Fact Sheet
Office of the Assistant Secretary for Economic Policy, u.s. Treasury
June 30, 1994
Analysts cite several sources of gains to the u.s. economy from the Urugu<lY Round:

•

Merchandise Trade Efficiency Gains: the boost to u.s. productivity because,
with reduced barriers to merchandise trade under the Uruguay Round, the
United States economy can concentrate a larger share of its production in
workers in high-skill, high-value goods-prod ucing sectors.

•

Service and Intellectual Property Efficiency Gains: the boost to United States
productivity because, with improved trade in services and protection of
intellectual property, the United States economy can expand employment and
prod uchon in high-skill high-value service- and idea-prod ucing sectors.

•

Dynamic Gains: the boost to standards of livmg in the Untted States from
increased investment set m motion by expanded access to markets. Increased
investment will boost productivity; world~wide competition will give consumers
lower prices.

• Rules Changes to improve the world trade system will decrease risk and lower
barriers to the expansion of high-value export industries.
Several studies have found net benefits to the u.s. of 0.4 to 1.2 percent of GOP.
•

These are the merchandise trade gains alone. The efficiency merchandise trade
gains are the only gains that are captured by economists' models-<lnd the
models fail to adequately count up even these gains.

•

The values of the other two major sources of net benefits from GAIT-the
service and intellectual property gains, on the one hand, and the dynamic gains
on the other-are hard to qUJntify; we estimJte that they <lre the same order of
magnitude as the merchandise trade efficiency gains.

•

We hope that independent economists, modellers, and experts will produce
estimates of the value of the other two components this summer.

There is reason to belIeve these other two sources are as importzmt as the first.
•

Thus our best, albeit preliminary, estimate of the long-run benefits to the U.s.
from the Uruguay Round is $100 to $200 billion a year in added income: the
GAIT is worth five NAFT As.

•

If three quarters of the income gains tJke the form of prod uctivity increases, and
one-quarter the form of increases in employment, then 300,000 to 700,000 more
people will be at work in a decade because of the Uruguay Round.

DEPARTMENT OF THE TREASURY

WASHINGTON

Benefits from GATI's Uruguay Round for the American
Economy
.
United States Treasury
Office of the Assistant Secretary for Economic Policy
June 30, 1994

Economic Benefits of the GAn Round
Negotiations under the aegis of the
General Agreement on Taflffs and Tradc
[GATT]-the Uruguay Round-have rcached
an agreement that further expands American
access to world markets.
The US gains
substantially-both in income and in
employment.
Preliminary estimates, bascd on academic
assessments prior to the conclusion of the
Uruguay Round, suggest that ten years after
implementation of the Uruguay Round
agreement, United States total annual incomes
should be greater by $100 to $200 billion
According to the Administration's range
of estimates:

the opportunities opened by increased
access to overseas markets.

•

Changes in the rules governing
InternatIOnal trade- better dispute
settlement mechanisms, new rules on
import I icensi ng, and so forth - wi II
decrease risk, and expand production and
employment in high-wage export
i nd ustrics.

•

Higher wages will pull more people into
the labor force. The $100 to $200 billion
of added GOP in 2004 will boost
employment by 300,000 to 700,000, as
our export industries grow rapidly. I

•

Moreover, the boost to employment wil!
be primarily in good, high-wage high-skill
jobs. Expansion of our export sectors
leads to a disproportionately large
~xpanslOn In the number of high~paying
Jobs.

•

The total boost to Americans' incomes and
production will amount, in ten years, to at
least $1,700 per family of four per year
(measured in 2004 dollars)

•

Improved market access-lower tariffs
and reduced non-tariff barriers-will
expand, employment, investment, and
production in high-value sectors.
Expanded merchandise exports will
amount to $150 billion per year by 2004.

Few legislative actions could do as much
good for the economic \vell-being of the
average American as successful UruguJ.)
Round ratification.

•

Expanded protection for intellectual
property, and other improvements in the
trade regime for services, will further
boost United States exports, national
product, and incomes.

Previous Studies of the Round

•

Better opportunities from expanded trade
will boost investment Americans will
invest more in the factories that produce
our principal exports, and invcst more in
thclr own skills and educatIOn because or

To date, a number of acaucmic stuuies
have examined the Uruguay Round, largely
estimating the long-run "static" gains to
productivity from increased merchandise traue
as a result of the Uruguay Round. These
I Assullllng the economy IS near full employment in
200-+. If there IS subsuntial macroeconomic slack, then
the employment boost could be sever;~ limes higher.

studies-completed before the final agreement
was reached and thus based not on what the
agreement \\.~ but on various forecasts of the
agreement-conclude that the gains to the
United States economy would be in the range
of 04 to 1 2 percent of national product,
assuming the agreement were fully phased-in
In the early 1990s 2
For example, Fran~ois, McDonald, and
Nordstrom (working for the GATT) calculated
that in their general-equilibrium model the
long-run productivity gains to the United
States economy from expanded merchandise
trade amounted to some $60 billion a year (or
roughly 1.2 percent of GOP). Nguyen,
Perroni, and Wigle (writing in the Economic
Journaf) estimated such gains as 0.8 percent
of GDP a year 3 A preliminary OEeD study
of the likely benefits from the Uruguay Round
estimated such gains to the United States at
0.4 percent of GDP a year in the long run.
All of these studies provide only partial
estimates of the boost to US. productivity.
These studies fail to capture a substantial
share of the merchandise trade efficiency
gains. The models do not adequately capture
the detailed shifts in trade within the
manufacturing sector, and do nol account for
many current non-tariff barriers to
merchandise trade. Hence, the models cannot
take account of the benefits of lowering such
non-tariff barriers.
These "efficiency gains" from increased
merchandise trade are understated in the
standard economic models, and are in any
event only one of the sources of gains to the
United State~ economy from the Uruguay
Round-albeit the only one that economists
can confidently model.
In addition to merchandise trade
efficiency gains, the Uruguay Round \\ill also
produce.
~Some h3H reported lower estlm:lles~ such studies,
however. adequ3tely capture only a portion of the
beneClts from the Cruguay Round-for example, the
benellts to agnculture
3 Another Pe~rronl and Wigle study. published in World
Economy, estim3ted productivity gains from expanded
merchandise trade at 17 percent of C S GDP The
I3rger eS~lm3te. however. may have assumed a more
comprehenSive G:\TT agreement than \\as In fact
reJched

•

Service and intellectual property gains:
United States productivity and incomes are
further increased bec~use the Uruguay
Round reduces barflers to trade in
se",ices, and protects United States
intellectual property. As a result, the
United States economy has expanded
opportunities to produce for, and can
create jobs and expand production in, the
high-skill, high-value service- and ideaproducing sectors.

•

"Dynamic" gains: the Uruguay Round
will induce:
•

Increased investment in the United
States as a result of increased profits
from exports~ increased investment
boosts productivity and incomes.

•

Increased world-wide competition and
the erosion of monopoly power,
which will put downward prcssure on
markups and profit margins, and thus
benefit consumers. Competition will
improve the efficiency of producers in
the long run.

• Benefits from

rules changes: increased
flows of trade because of improvements in
dispute resolution, bctter rules to govern
international trade, and consequent
reductions in uncertainty and political risk
are a major-though hard to quantifyportion of the benefits expected to flmv
from the Uruguay Round.

There is good reason to believe that (i)
the gains from increased trade in services and
the improved regime governing intellectual
property, and (ii) the "dynamic" gains are as,
if not more, important for the long-run health
of the United States economy than the
merchandise trade efficiency gains on which
economists have concentrated.

Assessing the Overall Impact
. Combining independent economists'
eSlimates of the merchandise trade "efficiency
gains" from the Uruguay Round-OA to 1.2
percent of G DP- with assessments of the

3
likely range of the quantitative benefits that
have escaped economists' traditional models
leads to an assessment that by 2004, when the
long-run benefits from Uruguay Round
implementation will have largely been
realized, United States GOP is likely to be
$100 to $200 billion a year higher as a result
of the Uruguay Round.
Such benefits would amount to at least
$1,700 per famil y of four per year- a
substantial boost to family purchasing power.
Some of this boost would come through
higher real wages, a small part through higher
returns on assets, and a large part through
lower prices on goods on which tariffs have
been reduced-or on which quotas have been
removed.
Higher real earnings will boost
employment. Because workers will be more
productive, firms' demands to hire workers
will rise. Because wages and real earnings
will be higher, more people will enter the
labor force and seek work.
Estimates of the extra employment
induced by long-run boosts in real earnings
vary: a one percent long-run rise in real
earnings increases total employment by
between 0.1 and 0.4 percent.
Should the Uruguay Round boost real
GOP in 2004 by $100 to $200 billion, thenusing 0.2 as the estimated responsiveness of
employment to higher incomes-300,000 to
700,000 additional Americans would be at
work in 2004 because of the Uruguay Round.

purchase inputs and supplies.
California should benefit to the tune of at
least $16 billion a year in income; New York
and Illinois should benefit each by $6 billion
in income~ North Carolina by $4 billion; and
soon.
The magnitude of the opportunity to raise
production and employment in high valueadded sectors is made clear by examining the
fastest-growing U.S. exports over the past
decade.
Between 1985 and 1993. the United
States boosted annual exports of electrical
machinery by $31 billion. of road vehicles by
$22 billion. of other transport equipmentmaking largely airplanes- by $18 billion, of
computers and office machinery by $16
billion, of power generating machinery by $10
billion, of telecommunications equipment by
$10 billion, and so on.
All of the United States' most successful
export industries are high-skill, high-wage.
capital-intensive, and high-tech industricsmaking the products that Americans should
produce as much as possible to guarantee a
high standard of living for Americans today,
and a rapidly rising standard of living for
Americans tomorrow. America can continue
to expand production and employment in
these sectors only if we keep expanding trade.
The expansion in exports since 1985
accounts for $152 billion of increased annual
production in these sectors today-production
that would not exist had trade not expanded and equals 2.5 percent of everything produced
in the United States today.

Regional and Industrial Distribution
The bulk of benefits from the Uruguay
Round will flow to states that prod uce the
service exports and the high-tech industrial
machinery in which the United States has the
greatest comparative advantage on world
markets. Note that many states and industries
that we do not usually think of as "export"
industries will benefit. Recall that an
automobile manufacturer produces at most
one-quarter of the value of a new car: the rest
of the value is added earlier in the production
process, by businesses and workers outside of
the auto industry from which auto companies

Conclusion
Tariff reductions in the Uruguay Round
arc smaller than in NAFfA-a reduction of
somewhat more than 3 percentage points on
tariffs imposed on industrial commodities
trade covered by the round. But the trade
flows are so much larger and affect so many
more countries that, even from the narrow
perspective of its effect on the United States
economy is alone, the Uruguay Round is
worth roughly five NAFf As.

4
and capabilities to the fullest extent.

If the Un i tcd Statcs is to sce rapid
cconomic growth ovcr the next decade, it must
take advantage of cvery opportunity to use the
skills of its workforce and the capabilities of
Its machi nes and fi rms. We must, as much as
pOSSible, expand production and employment
in hIgh-val uc actnilics.
World tradc provides one of the best
opportunities for United States citizens to
upgrade their jobs by expanding our
economy's reliance on high-skill, high-value
tasks and processes. The United States has
and should reinforce its dominant international
market position producing capital goods that
the Third World must purchase to
industrialize, and its dominant international
market position in those service-sector cxports
that are a rapidly-gro\\'ing part of high-value
world trade.
Each step toward further trade
libcralization cnablcs further boosts to United
States productivity, and increases the
opportunity for Americans to use their skills

Moreover, a failure to take this step
toward trade liberalization could have
dramatic consequences. Assessments of the
val ue of the Uruguay Round assume that,
absent ratification, the world trading system
would continue with business-as-usual. But
many countries have resisted protectionist
pressures over the past ten years in
anticipation of a favorable Uruguay Round
deal. How many countries would continue to
resist such pressures in the future if
ratification failed is uncertain at best.
Failure to ratify the Uruguay Round could
see a slowdown if not a stop to multilateral
trade liberalization, and substantial motion
away from an open, liberal global economy to
a closed, protectionist world trading system.
For this reason, even the economic-let alone
the political-stakes at risk in Uruguay Round
ratification may be much larger than estimated
here.

DEPARTMENT

OF
!~~

THE
.s-",\

lREASURY (~fi11\
Yr~~y

TREASURY

NEW S

~~8~~. . . . . . . . . . . . . . . ..

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

OmCE OF PUBUCAFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
June 30, 1994

STATEMENT OF TREASURY SECRETARY LLOYD BENTSEN

I am pleased that Mr. Fiske's thorough investigation of Treasury officials' actions
has ended. As I have said before, I have the highest regard for the integrity of these
officials, and therefore, today's positive report comes as no surprise to me.
Because it was important to this process that Mr. Fiske have prompt access to our
materials, I made it clear from the outset that we would go to extraordinary lengths to
assist the Independent Counsel. We conducted an extensive search of departmental
records and turned over thousands of pages of documents. In addition, IRS investigators
searched the offices and computers used by senior Treasury officials. We did everything
possible to' allow the Independent Counsel to complete his investigation as thoroughly
and as rapidly as possible.
When this matter first came up, I asked the Office of Government Ethics to look
into it to see if any ethics issues or conflicts arose from the actions of Treasury
Department officials. In addition, the OGE asked the Treasury Inspector General to
assist in fact-finding. At Mr. Fiske's request, the IG and OGE independently agreed to
wait until the completion of Mr. Fiske's investigation.
Now that Mr. Fiske's examination has been completed, I renewed my request to
the OGE today to examine the matter, and I asked the Treasury IG to assist in the
inquiry. I urged that this review be completed as quickly as possible, and I look forward
to the findings. They will have our complete cooperation, as will the Congress.
I have confidence in the excellent team at Treasury. There is important work to
be done, and I want to put this matter fully behind us.
-30-

LB-924

DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
ETARY OF THE TREASURY

June 30, 1994
The Honorable Stephen D. Potts
Director
Office of Government Ethics
Washington, D.C. 20005-3917
Dear Mr. Potts:
Today, Independent Counsel Robert Fiske announced that
he has completed his investigation as it relates to contacts
between White House and Treasury officials concerning the
Resolution Trust Corporation and its work with respect to Madison
Guaranty Savings and Loan Association. It is my understanding
that this removes any objection he has raised to steps OGE might
take in response to my March 3, 1994 request that you review
these contacts. Accordingly, I ask that you now begin your
review. Because you have informed me that you will base your
review, in part, on fact-finding by Treasury's Office of
Inspector General, I have urged the Office of the Inspector
General to begin his inquiry immediately and to provide you with
all assistance in its power.
Please provide me with your views and advice as soon as
possible. I would greatly appreciate receiving them prior to the
Congressional committee hearings on these contacts. Thank you,
again, for your attention to this important matter.

~:;/I3~x.,
~

Bentsen

DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
TARY OF THE TREASURY

June 30, 1994
MEMORANDUM FOR ROBERT P. CESCA
DEPUTY INSPECTOR GENERAL

~-:e:-

FROM:

LLOYD BENTSEN

SUBJECT:

Investigation of White House-Treasury contacts
concerning Madison Guaranty Savings and Loan
Association

Today, Independent Counsel Robert Fiske announced that he has
completed his investigation as it relates to contacts between
White House and Treasury officials concerning the Resolution
Trust Corporation and its work with respect to Madison Guaranty
Savings and Loan Association.
It is my understanding that this
removes any objection he previously raised to your providing
assistance to the Director of the Office of Government Ethics in
his review of these contacts. Accordingly, please begin your
inquiry immediately.
I would greatly appreciate it if you would
take whatever actions are necessary to ensure that the Director
receives your report in sufficient time to provide me with his
views and advice prior to the Congressional committee hearings on
this matter.

U. S. Department of Justice

Office of the Independent Counsel

1001 Pennsylvania Avtnue. N. W.

202·514·8688

Suiu 490·Nonh

Washington. D.C. 20004

June 30, 1994
The Honorable Lloyd M. Bentsen
Secretary of the Treasury
Department of the Treasury
1500 Pennsylvania Ave., N.W.
Suite 3330
Washington, D.C.
20220
Dear Secretary Bentsen;
This is to advise you that we have completed our
investigation into the contacts between the White House and
Treasury Department officials. Accordingly, we have no objection
to the Office of Government Ethics resuming the investigation which
was suspended at our request.
We thank you very much for your cooperation in this
matter.
Sincerely yours,

Zwt~f't

Robert B. F~~e,
r.
Independent Coun el

DEPARTMENT

THE

IREASURY (~~)
_

TREASURY

NEW S

1789

OFFICE OF PUBUC AFFAIRS .1500 PENNSYLVANIA AVENUE, N.W.• WASHINiGTON. D.C .• 20220,. i2(2) 622·2960

FOR IMMEDIATE RELEASE
June 30, 1994

STATEMENT BY TREASURY SECRETARY LLOYD BENTSEN
Today's vote by the House Ways and Means Committee is an important step in
the health care reform debate. The panel met its deadline. Chairman Gibbons and
members of the committee are to be congratulated for assembling a comprehensive
health care reform package that guarantees health insurance coverage to every
American.
If we work together over the next few weeks, we'll have a bill later this year that

President Clinton can be proud to sign. It won't be easy but I'm confident we'll get it
done.

-30-

LB-925

Report to the Congress
on
Nonhighway Recreational Fuel Taxes

Department of the Treasury
June 1994

DEPARTMENT OF THE TREASURY
WASHINGTON

ASSISTANT SECRETARY

JUN 3 0 1994

The Honorable Sam Gibbons
Acting Chairman
Committee on Ways and Means
u.s. House of Representatives
Washington, D.C. 20515
Dear Mr. Chairman:
section 8003 of Public Law 101-240, the Intermodal Surface
Transportation Efficiency Act of 1991, provides that the
Secretary of the Treasury shall, within a reasonable period after
the close of each of fiscal years 1992 through 1996, submit a
report to the Committee on Ways and Means of the House of
Representatives and the Committee on Finance of the Senate
specifying his estimate of the amount of nonhighway recreational
fuel taxes received in the Treasury during such fiscal year.
Pursuant to that section, I hereby submit "Nonhighway
Recreational Fuel Taxes" for fiscal years 1992 and 1993.
I hope you will find this report informative.
similar letter to Representative Bill Archer.

I am sending a

Sincerely,

'f?-e ~ ~~~~-P~
Leslie B. Samuels
Assistant Secretary
(Tax Policy)

DEPARTMENT OF THE TREASURY
WASHINGTON

ASSISTANT SECRETARY

JUN. 3 G 1994

The Honorable Daniel Patrick Moynihan
Chairman
Committee on Finance
United states Senate
Washington, D.C. 20510
Dear Mr. Chairman:
section 8003 of Public Law 101-240, the Intermodal Surface
Transportation Efficiency Act of 1991, provides that the
Secretary of the Treasury shall, within a reasonable period after
the close of each of fiscal years 1992 through 1996, submit a
report to the Committee on Ways and Means of the House of
Representatives and the Committee on Finance of the senate
specifying his estimate of the amount of nonhighway recreational
fuel taxes received in the Treasury during such fiscal year.
Pursuant to that section, I hereby submit "Nonhighway
Recreational Fuel Taxes" for fiscal years 1992 and 1993.
I hope you will find this report informative.
similar letter to Senator Bob Packwood.

I am sending a

Sincerely,

~~~-S::~s
Leslie B. Samuels
Assistant Secretary
(Tax Policy)

TABLE OF CONTENTS

Section I.

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Section ll.

Summary of Findings . . . . . . . . . . . . . . . . . . . . . . . . . 1

Section ill.

Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A. Motor Fuel Excise Taxes . . . . . . . . . . . . . . . . . . . . . 1
B. National Recreational Trails Trust Fund. . . . . . . . . . .. 2

Section IV.

Nonhighway Recreational Fuel Taxes . . . . . . . . . . . . . . . . 3
A. Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
B. Estimate............................... 4

Section V.

Status of the National Recreational Trails Trust Fund . . . . .. 5

Section VI.

Summary and Conclusion . . . . . . . . . . . . . . . . . . . . . . . 5

APPENDIX:

Sources of Data and Other Organizations Contacted
Regarding Nonhighway Recreational Fuels . . . . . . . . . . . . 7

REPORT TO CONGRESS ON
NONHIGHWAY RECREATIONAL FUEL TAXES

INTRODUCTION

This report on nonhighway recreational fuel taxes has been prepared by the Office of Tax
Analysis (OTA) pursuant to a Congressional mandate in the Intermodal Surface Transportation
Efficiency Act (ISTEA) of 1991 (p.L. 101-240). Section 8003 of the ISTEA, which became
effective December 18, 1991, established the National Recreational Trails Trust Fund, which
was to be funded in part by revenues received by the Highway Trust Fund from nonhighway
recreational fuel taxes.
Section 8003(d) of the ISTEA requires the Secretary of the Treasury to submit, following
each fiscal year from 1992 through 1996, a report to the Congressional tax-writing committees
specifying Treasury's estimate of the amount of nonhighway recreational fuel taxes received in
the Treasury each fiscal year.

ll.

SUMMARY OF FINDINGS

Nonhighway recreational fuel taxes are defmed in the ISTEA as taxes imposed under
Internal Revenue Code (IRC) sections 4041, 4081, and 4091 (to the extent attributable to the
Highway Trust Fund financing rate) with respect to fuel used in vehicles on recreational trails
or back country terrain, and fuel used in camp stoves and other non-engine uses in outdoor
recreational equipment. Treasury estimates that these taxes amounted to approximately $63
million and $64 million in fiscal years 1992 and 1993, respectively, or 0.38 percent and 0.36
percent respectively of total Highway Trust Fund revenues.

ill.

BACKGROUND

A. Motor Fuel Excise Taxes
Federal excise taxes are imposed under IRC sections 4041, 4081, and 4091 on special
motor fuels, gasoline and diesel fuel, respectively, used for highway transportation and certain
other activities. In fiscal years 1992 and 1993, the federal excise tax on gasoline and special
motor fuels was 14.1 cents per gallon. The federal excise tax on highway diesel fuel was 20.1

cents per gallon. These rates became effective December 1, 1990, following passage of the
Omnibus Budget Reconciliation Act of 1990. 1
Partial exemption from the general motor fuels excise taxes is available for various
alcohol-blended fuels, the most common being gasohol. Motor fuels used in farming; in other
non-highway business; by state and local governments; and by tax-exempt educational
organizations are exempt from taxation.
In fiscal years 1992 and 1993, the Highway Trust Fund received 11.5 cents for each
taxable gallon of gasoline or special motor fuel, and 17.5 cents for each taxable gallon of
highway diesel fuel. These rates are known as the Highway Trust Fund (RTF) fmancing rates.
The Leaking Underground Storage Tank: (LUST) trust fund received 0.1 cents per gallon of
taxable motor fuel. 2 An additional 2.5 cents per taxable gallon of gasoline, special motor fuel
and diesel fuel was retained in the General Fund for deficit reduction (the deficit reduction rate).
The ISTEA extended the RTF taxes, as well as the motorboat and small engine trust fund
taxes, through September 30, 1999, while the LUST trust fund tax is scheduled to expire after
December 31, 1995. 3

B. National Recreational Trails Trust Fund
Section 8003(a) of the ISTEA added section 9511 to the IRe, establishing the National
Recreational Trails Trust Fund (NRTTF). Amounts credited to the NRTTF are available, as
provided in appropriations acts, to carry out the purposes of ISTEA sections 1302 and 1303,
which together are often cited as the "Symms National Recreational Trails Act of 1991." In
general, section 1302 authorizes a program allocating funds to the States for providing and
maintaining recreational trails, 4 and section 1303 establishes a national recreational trails
advisory committee.

lThe Omnibus Budget Reconciliation Act of 1993 ( OBRA 93) increased the federal excise tax on motor fuels
by 4.3 cents per taxable gallon, effective October 1, 1993.

%e LUST trust fund tax does not apply to liquefied petroleum gas.
3However, authority for transfers from the Highway Trust Fund to the Aquatic Resources Trust Fund extends
only through September 30, 1997.

4ISTEA Section 1302(g)(5) defines a recreational trail as .. 8 thoroughfare or track across land or snow, used
for recreational purposes such as bicycling, cross-country skiing, day hiking, equestrian activities, jogging or similar
fitness activities, trail biking, overnight and long-distance backpacking, snowmobiling, aquatic or water activity and
vehicular travel by motorcycle, four-wheel drive or all-terrain off-road vehicles .... •

Among the revenue sources to be credited to the NRTIF pursuant to section 9511 are
amounts described in IRC section 9503(c)(6). That section requires the Secretary of the
Treasury to pay "from time to time from the Highway Trust Fund into the National Recreational
Trails Trust Fund" amounts equal to the lesser of: (1) 0.3 percent of total HTF receipts for the
period for which payment is made or (2) the amount obligated under ISTEA section 1302 for
expenditure from the NRTIF, during the fiscal year. The percentage that nonhighway
recreational fuel taxes bear to HTF receipts was to be adjusted by Treasury within one year of
ISTEA's enactment, and may be adjusted by Treasury in future years, subject to certain
restrictions. 3

IV. NONHIGHWAY RECREATIONAL FUEL TAXES

Nonhighway recreational fuel taxes are taxes imposed under IRC sections 4041, 4081,
and 4091 (to the extent attributable to the Highway Trust Fund financing rate) with respect to
fuel used in vehicles on recreational trails or back country terrain, and fuel used in camp stoves
and other non-engine uses in outdoor recreational equipment. Prior to enactment of ISTEA, no
provision existed to transfer these taxes from the Highway Trust Fund, so they were available
to finance authorized highway and mass transit projects. Under ISTEA, these taxes are available
to finance authorized recreational trails programs.

Methodology

Comprehensive data on nationwide use of motor fuels on recreational trails or back
country terrain are not readily available from any single source. The Department of
Transportation's Federal Highway Administration (FHWA) annually publishes estimates of
nonhighway gasoline use by type of use. For 1992, FHWA estimated that 3.9 billion gallons
were used off-highway, of which 3.4 billion gallons were consumed by private (non-government)
entities. This represents 3 percent of total FHWA-reported gasoline consumption for that year. 4
However, recreation is not one of the specified nonhighway uses.
In developing its estimate of nonhighway recreational fuel taxes, OTA contacted a variety
of organizations knowledgeable about recreational fuel use, including the FHWA, state agencies,
trade associations representing vehicle and equipment manufacturers, trail user groups, trade
pUblications, and others. The consensus that emerged from these discussions was that nearly
all of the federally-taxed fuel consumed in recreational uses was gasoline (rather than special
motor fuels and diesel fuel), and that the major uses of such fuels are in motorcycles, all-terrain

3'fhe adjustment required within one year of ISTEA's enactment was not relevant for determining the amount
to be transferred to the NRTIF, since Congress made no appropriations from the trust fund for either fiscal year
1992 or fiscal year 1993.
4Highway Statistics 1992, U.S. Dept. of Transportation, Federal Highway Administration, table MF-21A.

vehicles, snowmobiles, and four-wheel drive vehicles. A very small amount of gasoline is also
used in camp stoves and other outdoor camping equipment. 5
OTA's estimate of nonhighway recreational fuel taxes was obtained by taking the product
of 1) an estimated number of gallons of gasoline used off-highway nationwide for defmed
recreational purposes and 2) the fiscal year 1992 and 1993 RTF financing rate of 11.5 cents per
gallon. The estimate of total annual gallons consumed was obtained by summing estimated
annual gallons consumed by each type of vehicle used off-highway for recreational purposes, and
then adding a small estimated amount for camping uses. For each vehicle type, the estimated
annual gallons consumed were derived as the product of three variables: (1) the vehicle
population, (2) the estimated percent of vehicle population used off-highway for recreational
purposes, and (3) the estimated average annual gallons consumed per vehicle in recreational
uses.
B. Estimate
For fiscal year 1992, OTA estimates that $63 million in nonhighway recreational fuel
taxes were received in the Treasury, based on estimated taxable gasoline consumption for such
use of 548 million gallons. For fiscal year 1993, nonhighway recreational fuel taxes are
estimated to be $64 million, based on taxable consumption for such use of 560 million gallons.
This consumption represents about 0.5 percent of total taxable gasoline consumption.
Motorcycles and all-terrain vehicles combined account for the largest share of estimated annual
nonhighway recreational fuel use, followed by light trucks, and then snowmobiles. Camping
equipment accounts for a very small amount and share of the total. For fiscal years 1992 and
1993, total HTF revenues, net of refunds, were $16,733 million and $18,039 million
respectively. Thus, estimated nonhighway recreational fuel taxes represented 0.38 percent and
0.36 percent, respectively, of total HTF revenues. Table I summarizes these [mdings.
In estimating the relevant vehicle populations, OTA relied primarily on state vehicle
registration information, supplemented by information on the number of vehicles not registered
in any state but used off-highway for recreational purposes. While no definitive information
could be found concerning either the frequency of nonhighway recreational use or the average
annual gasoline use per vehicle on a nationwide basis, values were assumed for these parameters
based on discussions with industry representatives and state officials and review of trade
pUblications. OTA also consulted with the FHWA.

SSee the Appendix for a listing of published data sources and organizations contacted for this report.

Table 1
Nonhighway Recreational Fuel Taxes
FY 1992

FY 1993

Gallons Consumed

548 million

560 million

RTF Financing Rate

$0.115 per gallon

Tax Receipts

$63 million

$64 million

Highway Trust Fund Net Receipts

$16,733 million

$18,039 million

Nonhighway Recreational Fuel Taxes as
Percent of HTF Receipts

0.38 percent

0.36 percent

Nonhighway Recreational Fuels:

The Department of the Treasury
Office of Tax Analysis

STATUS OF THE NATIONAL RECREATIONAL TRAILS TRUST FUND

As mentioned above, IRC Section 9503(c)(6) limits the amount of nonhighway
recreational fuel taxes that may be paid into the NRTIF during any fiscal year to the amount
that has been obligated to be spent from the fund that year. 6 However, since no appropriations
have ever been made from the NRTIF, no obligations have been incurred, and, as a result, no
transfer of funds has ever been made. At this time, the trust fund has a zero balance. If funds
are appropriated from the NRTTF and obligations against the fund are incurred, Treasury will
transfer amounts as needed to cover anticipated outlays and provide an adequate working
balance.

VI.

SUMl\1ARY AND CONCLUSION

The Interrnodal Surface Transportation Act of 1991 established the National Recreational
Trails Trust Fund (NRTTF) and directed Treasury to report to Congress annually its estimate
of nonhighway recreational fuel taxes. Such taxes are those fuel taxes received in the Treasury

6In addition, the amount obligated during any fiscal year through 1997 may not exceed $30 million. See ISTEA
Section 1302(d)(3) for limitations on obligations.

(to the extent attributable to the Highway Trust Fund financing rate) resulting from use of
vehicles on recreational trails and back country terrain, and certain camping activities. Treasury
has found that these taxes amounted to $63 million and $64 million in fiscal years 1992 and 1993
respectively, or 0.38 percent and 0.36 percent respectively of total Highway Trust Fund
revenues.
The NRTTF currently has a zero balance, and no monies have ever been credited to the
fund. Transfers of taxes from the Highway Trust Fund to the NRTTF for any year cannot
exceed the amount obligated to be spent from the trails fund. Since no funds have ever been
appropriated from the NRTTF, no obligations against the fund have been incurred, and no
monies have been transferred to the fund. If funds are appropriated from the NRTTF and
obligations against the fund are incurred, Treasury will transfer amounts from time to time
during the year sufficient to cover anticipated outlays and provide an adequate working balance.

APPENDIX

SOURCES OF DATA AND OTHER ORGANIZATIONS CONTACTED
REGARDING NONHIGHWAY RECREATIONAL FUELS

Published Data Sources
Motorcycle Statistical Annual, Motorcycle Industry Council, Inc.,
Irvine, CA, various issues.
MVMA - Motor Vehicle Facts & Figures, American Automobile
Manufacturers Association, Inc., Detroit MI, various issues.
Highway Statistics, U.S. Department of Transportation, Federal
Highway Administration, Washington, DC, various issues.
1987 Census of Transponation: Truck Inventory and Use Survey,
United States. U.S. Department of Commerce, Washington, DC,
August 1990.
1985-87 Public Area Recreation Visitor Survey, U.S. Department of
Agriculture, Forest Service, Athens, GA, July 1988.
Other Or&:anizations Contacted
State Agencies
California Department of Parks and Recreation, Off-Highway Motor
Vehicle Recreation Division, Sacramento, CA.
Michigan Department of Natural Resources, Forest Management
Division, Lansing, MI.
User Groups
TREAD LIGHTLYl On Public and Private Land, Ogden UT.
Coalition for Recreational Trails, Washington, DC
American Recreation Coalition, Washington, DC
Colorado Off-Highway Vehicle Coalition, Littleton, CO.
United 4 Wheel Drive Association, Felton, PA.
Trade Publications
Off Road, Argus Publishing Co., Los Angeles, CA.
Four Wheeler, Canoga Park, CA.
4-Wheeler & Off-Road, Petersen Publishing Co., Los Angeles, CA.
Industry Representatives
International Snowmobile Industry Association, Fairfax, VA.
Recreation Vehicle Industry Association, Reston, VA.
Coleman Corporation, Wichita, KS.
Specialty Equipment Market Association, Diamond Bar, CA.
Association of International Automobile Manufacturers, Arlington, VA.
Chrysler Corporation.
Ford Motor Company.
General Motors Corporation.

ACKNOWLEDGEMENTS

This study was prepared by Robert Yuskavage and Mark Rider of the Office of Tax
Analysis under the direction of Joel Platt.

Department of the Treasury
Washington, D.C. 20220
Official Business
Penalty for Private Use, $300

......

~
,

DEPARTMENT OF THE TREASURY

- -

-;,

~'.

-~.

WASHINGTON. D.C. 20220

}",,-'

July 5, 1994
FINAL REGULATIONS ONDER SECTION .82
I.

OVERVIEW

These
regulations
are
an
important
part
of
Administration's International Enforcement Initiative that
announced last year.
These regulations replace temporary
proposed regulations that the Service issued on January 21,
(the 1993 regulations).

the
was
and
1993

section 482 is directed at the problem of determining
appropriate transfer prices for cross-border transactions between
related parties. Section 482 authorizes the Secretary to allocate
income, deductions and other tax attributes among related taxpayers
to prevent evasion of taxes or clearly to reflect income. The Tax
Reform Act of 1986 (the "1986 Act") amended section 482 by
providing that income from the transfer of intangible property must
be commensurate with the income attributable to the intangible.
The 1986 Act was estimated to raise $410 million over five years.
All versions of the section 482 regulations have adopted the
so-called "arm I s length" standard as their governing ,principle.
The arm's length standard has been adopted by all the major trading
partners of the United states.
Under the armis length standard,
the appropriate amount of consideration in a controlled transaction
is the amount that would have been charged or paid had the parties
to the transaction been unrelated, i.e., dealing at arm's length.
~pplication
of the arm's length standard generally requires
i.nformation regarding comparable transactions between unrelated
)arties.
The regulations under section 482 describe different
lethods that can be applied to such information to determine an
lrm's length price.
I.

PROVISIONS OF THE FINAL REGULATIONS

While the final regulations reflect numerous modifications in
esponse to the comments received on the 1993 regulations, both the
ormat and the substance of the final regulations are for the most
art consistent with the 1993 regulations. The changes adopted are
ntended to clarify and refine those provisions of the 1993
~gulations
that required improvement, without fundamentally
Ltering the basic policies reflected in the 199) regulations.
The most noteworthy features of the 1993 regulations in
lmparison to earlier versions of the regulations under section 482
!re the emphasis on comparability (i.e., the degree of similarity
tween the controlled and uncontrolled transaction) and the
exibility resulting from this emphasis.
The final regulations

-2-

adhere to this emphasis, and in some cases increase it.
By removing these restrictions, the final regulations are
intended to maximize the extent to which relevant information may
be taken into account in evaluating taxpayers' results under the
arm's length standard. As a consequence, however, the emphasis on
comparability is increased.
The "best method rule" under the
regulations provides that the method chosen in any case must be the
method that provides the most reliable measure of an arm's length
result under the facts and circumstances. Thus, taxpayers and the
IRS will be required to exercise considerable judgment in applying
the arm's length standard.
To assist taxpayers and the IRS in
exercising this judgment, the discussion of the factors to consider
in applying the best method rule has been substantially expanded.

Interaction with Section 6662(e)

The section 482 regulations are inseparable from the section
6662(e) regulations. The regulations under section 6662(e), which
were issued in February, 1994, implement an amendment to section
6662(e)
that was enacted as part of the Omnibus Budget
Reconciliation Act of 1993. Section 6662(e) imposes penalties of
20 or 40 percent in the case of underpayments of tax that are
attributable to large transfer pricing adjustments.
The penalty will not be imposed, however, if the taxpayer
attempted to set its prices in accordance with section 482, and
prepared contemporaneous documentation demonstrating that it
reasonably concluded that its prices were arm's letlgth.
Thus,
while these regulations afford considerable leeway for the exercise
of judgment by the IRS and the taxpayer, taxpayers may feel
pressure to exercise that judgment appropriately, given the
sUbstantial penalties that could be imposed if they did not apply
the regulations in a reasonable manner.
B.

Comparable Profits Method

The 1993 regulations added a new method to the section 482
regulations known as the Comparable Profits Method (the CPM). The
CPM indirectly evaluates whether transfer prices are arm's length
by comparing the operating profits earned by the taxpayer to the
profits earned by unrelated companies engaged in similar business
activities.
When the CPM was first proposed, many commenters
asserted that because operating profit can be affected by factors
other than transfer pricing, such a measure would not provide a
reliable measure of an arm's length result, and therefore was not
consistent with the arm's length standard.
Despite these concerns, the final regulations retain the CPM.
To address commenters' concerns, the regulations' overall emphasis
o~ comparability is intended to cause more direct evidence of arm's
length prices to be preferred over the CPM when it is available.

-3-

Role of Profit Split Methods

The final regulations finalize profit split rules that were
proposed in the 1993 regulations. The united states for many years
has been reluctant to permit wide use of profit split methods
because they do not refer solely to results of transactions between
unrelated parties in determining an arm's length result.
To the
extent that they do not rely on such results they may be considered
to be inconsistent with the arm's length standard.
There are,
however, cases in which it is impossible to locate adequate data to
reliably apply one of the methods. In such a case a profit split
may be the best available method.
The emphasis on comparability, however, is intended to prevent
the use of profit splits except in cases in which the facts
surrounding the taxpayer's transactions are so unusual that it is
impossible to locate SUfficient reliable data to apply another
method in a reliable manner.
D.

"Inexact" Comparables

Under the 1993 regulations the standards of comparability
under all methods except the CPM required that a comparable be
highly similar to the taxpayer's transactions.
Many commenters
pointed out that transactions with lesser degrees of comparability
("inexact" comparables) also could provide useful information in
many cases.
Therefore, the final regulations eliminate the
arbitrary restrictions on the use of inexact comparables and
instead rely on the best method rule to permit their use when they
provide the most reliable measure of an arm's length result, and to
prevent their use when they do not.
E.

Arm's Length Range

Like the 1993 regulations, the final regulations provide that
an arm's length range may be derived from two or more comparable
uncontrolled transactions.
Under the 1993 regulations the range
included all the results that met the specified standard of
comparability under the method being applied.
Under the final regulations, the arm's length range will be
established in one of two ways, depending on whether inexact
comparables are used.
First, the range will consist of all the
comparables that
are highly comparable to the controlled
transaction.
Second, if inexact comparables are used, the reliability of
the analysis must be enhanced by applying statist1cal techniques to
the results. In this case the range consists of the interquartile
range, i. e. , the 25th to the 75th percentile of the results.

-4-

Ownership of Intangible Property

Prior regulations provided that for purposes of section 482
intangible property (patents, trademarks, etc.) generally would be
treated as being owned by the taxpayer that bore the greatest share
of the costs of development. This rule was criticized, principally
because it disregarded legal ownership. Commenters asserted that
disregarding legal ownership could be inconsistent with the arm's
length standard.
For instance, a controlled taxpayer that was
treated as the owner of an intangible for section 482 purposes
might not be the legal owner.
At arm's length, the legal owner
could transfer the rights to the intangible to another person
irrespective of the developer's contribution to the development of
the intangible.
On the other hand, it would be unlikely that at
arm's length an unrelated party would incur substantial costs
adding value to an intangible that was owned by an unrelated party,
unless there was some assurance that the party that incurred the
expenses would receive the opportunity to reap some benefit from
having incurred the expenses.
The final regulations adopt a different approach to the
identification of the owner of an intangible that is more
consistent with legal ownership. The legal owner of the right to
exploit an intangible will be considered the owner for purposes of
section 482.
Ownership of intangible property that is not legally protected
will be determined in a manner similar to that under the 1993
regulations, i.e., the owner will be the person ~hat bore the
grea.test share of the costs of development.
Finally, if a
controlled taxpayer is not the owner of an intangible but enhances
the value of the intangible (for example, through extensive
advertising that adds value to a trademark), that person must be
compensated for effectively performing a service on behalf of the
owner.

UBLIC DEBT NEWS
Department of the Treasury - Bureau of the Public Debt - .Washington,
DC 20239
(I
I :

FOR IMMEDIATE RELEASE
July 5, 1994

C,?N,I'A<tr; Office of Financing
" v
202 - 219 - 3350

' . - '"

RESULTS OF TREASURY'S AUCTION OF i3-WEEK BILLS
Tenders for $12,013 million of 13-week bills to be issued
July 7, 1994 and to mature October 6, 1994 were
accepted today (CUSIP: 912794N59).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average

Discount
Rate
4.29%
4.31%
4.31%

Investment
Rate
4.40%
4.42%
4.42%

Price
98.916
98.911
98.911

$180,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 62%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS

Received
$48,003,413

Accepted
$12,012,973

$42,173,830
1,414,490
$43,588,320

$6,183,390
1,414,490
$7,597,880

3,320,430

1,094,663
$48,003,413

1,094,663
$12,012,973

Type

Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS

An additional $264,537 thousand of bills will be
issued to foreign official institutions for new cash.

LB-926

UBLIC DEBT NEWS
Department of the Treasury - Bureau of the;~\l,~tir p;ebt:. Wtashi~gton, DC 20239

FOR IMMEDIATE RELEASE
July 5, 1994

.CONr1\G'l':j
Office of Financing
, ......
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $12,053 million of 26-week bills to be issued
July 7, 1994 and to mature January 5, 1995 were
accepted today (CUSIP: 912794P73).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average

Discount
Rate
4.71%
4.74%
4.74%

Investment
Rate
4.89%
4.92%
4.92%

Price
97.619
97.604
97.604

$4,000,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 54%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS

Received
$43,685,950

Accepted
$12,053,473

$38,393,397
1,245,316
$39,638,713

$6,760,920
1,245,316
$8,006,236

3,100,000

947,237
$43,685,950

947,237
$12,053,473

Type

Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS

An additional $228,763 thousand of bills will be
issued to-foreign official institutions for new cash.

LB-927

DEPARTMENT

THE

IREASURY ~.~

TREASURY

NEWS

OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960

FOR RELEASE AT 2:30 P.M.
July 5, 1994

CONTACT:

Office of Financing
202/219-3350

TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $24,000 million, to be issued July 14,
1994. This offering will result in a paydown for the Treasury of
about $1,300 million, as the maturing weekly bills are
outstanding in the amount of $25,306 million.
Federal Reserve Banks hold $6,406 million of the maturing
bills for their own accounts, which may be refunded within the
offering amount at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $2,317 million as agents for
foreign and international monetary authorities, which may be
refunded within the offering amount at the weighted average
discount rate of accepted competitive tenders. Additional
amounts may be issued for such accounts if.the aggregate amount
of new bids exceeds the aggregate amount of maturing bills.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C. This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of the new securities are given in the
attached offering highlights.
000

Attachment

LB-928

HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED JULY 14, 1994

July 5, 1994
Offering Amount .

$12,000 million

91-day bill
912794 N6 7
July 11, 1994
July 14, 1994
October 13, 1994
April 14, 1994
$12,612 million
$10,000
$ 1,000

lS2-day bill
912794 PS 1
July 11, 1994
July 14, 1994
January 12, 1995
January 13, 1994
$16,037 million
$10,000
$ 1,000

Description of Offering:

Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date .
Currently outstanding
Minimum bid amount
Multiples .

The following rules apply to all securities mentioned above:

Submission of Bids:
Noncompetitive bids
Competitive bids

Maximum Recognized Bid
at a Single Yield

35% of public offering

Maximum Award .

35% of public offering

Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms

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

FOR RELEASE AT 3:00 PM
July 7, 1994

I j

_Contact: Peter Hollenbach
I
(202) 219-3302

PUBLIC DEBT ANNOUNCES ACTIVITY FOR
SECURITIES IN THE STRIPS PROGRAM FOR JUNE 1994

Treasury's Bureau of the Public Debt announced activity figures for the month of June 1994,
of securities within the Separate Trading of Registered Interest and Principal of Securities
program (STRIPS).
Dollar Amounts in Thousands
Principal Outstanding
(Eligible Securities)

$778,598,919

Held in U nstripped Form

$558,720,744

Held in Stripped Form

$219,878,175

Reconstituted in June

$11,603,180

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."
Information about "Holdings of Treasury Securities in Stripped Form" is now available on the
Department of Commerce's Economic Bulletin Board (EBB). The EBB, which can be
accessed using personal computers, is an inexpensive service provided by the Department of
Commerce. For more information concerning this service call 202-482-1986.

000

PA-151
CLB-929)

TABLE VI--HOLDINGS OF TREASURY SECURITIES IN STRIPPED FORM, JUNE 30, 1994
(In thousands)

--------------------------------------------------------------------------------------------------------------------II
Principal Amount Outstanding
I
1----------------------------------------------------1 1 Reconstituted
Total
I Portion Held in I Portion Held 1 n II This Month#1
Maturity Date
I
Loan Description
1 Unstripped Form 1 Stri pped Form II

1
I
____________________________________________
----------------1----------------- -----------------11----------------$20.800
$I, 9B5, 600 II
$4,672,954
$6.658,554 1
..... 11/15/94 .....
1-5/8X Note C-1994 .....
-01.315,680
5,61B,181
II
6,933,861 1
· .... 2/15/95 ......
1-1/4X Note A-1995 .....
168.480
2,605.440
4,521. 646
II
7,127,086
..... 5/15/95 ......
l-l/4X Note B-1995 .....
68,000
2,736,400
5,219,501
II
7,955,901
..... B/15/95 ......
0-1/2% Note C-1995 .....
-03,354.400
3,964,150
II
7,318,550
..... 11/15/95 .....
-1/2% Note 0-1995 ......
8,000
1,430,400
7,015,378
II
8,445,778
..... 2/15/96 ......
-7/B% Note A-1996 ......
80,000
1,000,000
19,085,643
II
20,085,643
..... 5/15/96 ......
-3/8% Note C-1996 ......
30,400
2,324,000 II
17 ,934,810
20,258,810
· ., .. 11/15/96 .....
-1/4% Note 0-1996 ......
35,600
1,
177
,200
8,744,037
II
9,921,237
..... 5/15/97 ......
-1/2% Note A-1997 ......
-01,448,000 I
7,914,836
9,362,836
· .... 8/15/97 ......
-5/8% Note B-1997 ......
12,800
2,067,200 I
7,741, 129
9,80B,329
..... 11/15/97 .....
-7/8% Note C-1997 ......
55,040
924,160
8,234,908
I
9,159,068
..... 2/15/98 ......
-1/8% Note A-1998 ......
-02,362,200
6,B03,187
I
9,165,387
..... 5/15/98 ......
~ Note 8-1998 ..........
135,200
2,096,000 I
9,246,646
11,342,646
· .... 8/15/98 ......
'1/4% Note C-1998 ......
20,800
2,801,600
7.101,275
1
9,902,875
· .... 11/15/98 .....
·7/8% Note 0-1998 ......
4,800
1.465,600 I
8,254,023
9,719.623
..... 2/15/99 ......
·7/8% Note A-1999 ......
81,600
3,382,400 I
6,664,703
10,047,103
· .... 5/15/99 ......
,1/8% Note 8-1999 ......
21,200
2,036,175
8,127,469
10,163,644
I
..... 8/15/99 ......
'Note C-1999 ..........
-02,64B,OOO I
8,125,960
10,773,960
..... 11/15/99 .....
·7/8% Note 0-1999 ......
-01,280,400 I
9,392,633
10,673,033
..... 2/15/00 ......
·1/2X Note A-2000 ......
9,600
4,299,200
6,197,030
10,496,230
I
· .... 5/15/00 ......
I
-7/8% Note 8-2000 ......
29.120
3,039,360 I
8,041,286
11,080,646
..... 8/15/00 ......
-3/4% Note C-2000 ......
35,200
2,514,400 I
9,005,282
11,519,682
..... 11/15/00 .....
-1/2% Note 0-2000 ......
158.400
1,929,600 I
9,383,202
11,312,802
..... 2/15/01 ......
-3/4% Note A-2001 ......
-02,356,650
10,041, 433
12,398,083
II
· .... 5/15/01. .....
'Note 8-2001 ..........
22.400
1.913,600 II
10,425.585
12.339.185
..... 8/15/01 ......
-7/8% Note C-2001 ......
-01.379.840
22.846.262
24,226,102
II
..... 11/15/01 .....
-1/2% Note 0-2001 ......
30.000
818.800
10.895.597
11,714,397
II
..... 5/15/02 ......
-1/2% Note A-2002 ......
-0412.800 II
23,446.215
23.859.015
..... 8/15/02 ......
-3/8% Note B-2002 ......
-028.352 II
23.534.339
23.562.691
..... 2/15/03 ......
-1/4X Note A-2003 ......
-0143,200
27.867,828
28.011,028 I
..... 8/15/03 ......
II
-3/4X Note 8-2003 ......
-0-O- II
12,955,077
12,955.077 1
..... 2/15/04 ......
-7/8% Note A-2004 ......
-0-O- I1
14.440,372
14,440.372 I
..... 5/15/04 ......
-1/4X Note B-2004 ......
91.200
2,691.200
5.610,606
8,301,806 1
..... 11/15/04 .....
II
1-5/8% 80nd 2004 .......
54.000
1,182,500 II
3,078,258
..... 5/15/05 .. _...
4,260,758 I
2% Bond 2005 ...........
60,000
861,600 II
8,408,113
9,269,713 I
..... 8/15/05 ......
0-3/4% Bond 2005 .......
-0640
4,755,916
4,755,276
..... 2/15/06 ......
11
-3/8% Bond 2006 ........
I
468,800
3,946.400 II
2,059,184
6,005,584 1
..... 11/15/14 .....
1-3/4X Bond 2009-14 ....
1. 251. 680
7,342.080 II
5,325,719
12,667,799 1
..... 2/15/15 ......
1-1/4% Bond 2015 .......
33.600
4.988.800
.. ... 8/15/15 ......
7.149.916 I
2.161.116
II
0-5/8% Bond 2015 .......
153.600
4.507.200 II
..... 11/15/15 .....
6.899.859 I
2.392.659
-7/8% Bond 2015 ........
270.400
925.600 II
.... . 2115/16 ......
7.266,854 I
6.341,254
-1/4% Bond 2016 ........
-0421.
600
. .... 5115/16 ......
18.823,551 I
18.401.951
-1/4% Bond 2et6 ........
II
-0910,800 II
. ... . 11115/16 .....
18.864,448 I
17.953.648
-112% Bond 2016 ........

land 2017 ........
~nd 2017 ........
:and 2018 ........
2018 ............
and 2019 ........
and 2019 ........
and 2020 ........
and 2020 ........
and 2020 ........
and 2021. .......
ond 2021 ........
)nd 2021. .......
~021 ............
lnd 2022 ........
md 2022 ........
IOd 2023 ........
IOd 2023 ........

· " .. 5/15/17 ......
..... 8/15/17 ......
..... 5/15/18 ......
.. 11/15/18 .....
. .... 2/15/19 ......
· " .. 8/15/19 ......
..... 2/15/20 ......
. .... 5/15/20 ......
. .... 8/15/20 ......
'" .. 2/15/21 ......
..... 5/15/21 ......
· .... 8/15/21. ... "
..... 11115/21 .....
..... 8/15/22. " ...

18,194,169
14,016,858
8,708,639
9,032,870
19,250,798
20,213,832
10,228,868
10,158,883
21,418,606
11,113,373
11,958,888
12,163,482
32,798,394
10,352,790
10,699,626
18,374,361
22,909,044

.................. j

778,598,919

.... . 11/15/22 .....

'" .. 2/15/23 ......
..... 8/15/23 ......

I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I

5,637,049
5,972,058
2,001.439
1,325,070
4,597,998
17,709,192
4,314,068
3,444,803
4,093,166
9,474,973
4,717,288
5.179,482
7,673,544
8,660,790
4,272,426
16,844,761
22,852,276

558,720,744

I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I

12,557,120
8,044,800
6,707.200
7,707,800
14,652,800
2,504,640
5.914.800
6.714,080
17,325,440
1,638,400
7,241.600
6,984,000
25,124.850
1,692,000
6,427,200
1. 529,600
56,768

219,878,175

II
II
II
1\
II
II
II
II
II
II
II
II
II
II
II
II
II

861,440
292,800
113,600
135,200
1. 294,400
797,120
754,800
1. 351. 680
631. 360
190,400
465,920
440,640
470,300
143,200
201,600
48,000
-0-

11.603,180

[----------------1-----------------1-----------------1 1-----------------

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

::~================================================================================:=:==========~============

tive May 1, 1987, securities held In stripped form were eligible far reconstitution to their unstripped form.
the 4th workday of each month Table VI will be available after 3:00 pm eastern time on the Commerce Department's
10mic Bulletin Board (EBB). The telephone number for more information about EBB is (202) 482-1986. The balances
this table are subject to audit and subsequent adjustments.

PUBLIC DEBT NEWS
Depanment ofthe Treasury • Bureau of the Public Debt • Washington,
i

DC 20239

..;\;~

FOR IMMEDIATE RELEASE
July 7, 1994

Contact: Sheila Nelson
(202) 219-3302

JUNE SAVINGS BONDS SALES REACH $660 MILLION
Savings Bonds sales in June reached $660 million, pushing the value of U.S. Savings Bonds held
by Americans to $177.1 billion, up 6 percent over a year ago.
Savings Bonds issued on or after March 1, 1993, and held five years or longer, earn the
market-based interest rate if it averages more than the guaranteed minimum of 4 percent. Bonds
issued before March 1993 retain their existing guaranteed minimum rates until they enter a new
extended maturity period. If redeemed during the first five years, bonds earn 4 percent. The
current semiannual market-based rate effective May 1, 1994, through October 31, 1994, is 4.70
percent.
Interest earnings on Savings Bonds are exempt from State and local income taxes, and Federal
income taxes on the interest earnings can be deferred.
Current rate information can be obtained by calling the Savings Bonds Marketing Office's
toll-free number, 1-800-4US-BOND.

-more-

PA-I50

LB-930)

STATISTICAL SUMMARY
Series EE and HH U. S. Savings Bonds
Month of June 1994
June
1994

ISSUES, REDEMPTIONS AND
OUTSTANDING

June
1993

(In millions of dollars)
Sales:

Series EE

$ 660

$ 798

Accrued Discount (Interest
earned and added to Amount
outstanding) Series E & EE

733

772

Redemptions (Including
Accrued Discount)
All Series

831

715

Amount Outstanding
Net Increase June

564

858

Total outstanding

1994

Cash Adjustments from Series
HH Savings Bonds Exchanges

1993

Series E & EE
Series H & HH

$165,796
11,334

$155,520
11,011

Total All Series

$177,130

$166,531

000

DEPARTMENT

THE

TREASURY

OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANlAAVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
July 7, 1994

Contact: Scott Dykema
(202) 622-2960

U.S., SOUTH AFRICA TO HOLD INCOME TAX TREATY TALKS
Negotiation of an income tax treaty with South Africa will begin this fall, the
Treasury Department said.
Officials will meet Oct. 24 in South Africa. There is no tax treaty between the
countries and a prior treaty was terminated as of July 1, 1987. U.S. and South African
officials had informal discussions earlier this year to prepare for the negotiations.
The new treaty is expected to deal with taxation of income from business
activities, investments, and personal services derived by residents of one country from the
other. The accord will include provisions to avoid taxation of income by more than one
nation, to ensure that governments don't discriminate between domestic and foreign
taxpayers, and to prevent abuse of the treaty. Finally, the new treaty will include
exchange of tax information and other administrative cooperation measures between tax
authorities in both countries.
Several "model" tax treaties will be used as patterns in the negotiations. These
include a new U.S. model income tax treaty that should be public by the time the talks
begin, a South African model treaty, and model treaties published by the United Nations
and the Organization for Economic Cooperation and Development. In addition, tax
treaties between South Africa and its other major trading partners also will be factored
m.
The Treasury Department is seeking public comments regarding the upcoming
negotiations. Anyone wishing to comment on the proposed treaty should send their
written comments to the International Tax Counsel, U.S. Treasury Department, 1500
Pennsylvania Ave., N.W., Room 3064, Washington, D.C. 20220. Comments also can be
submitted by fax to (202) 622-1051.
-30-

LB-931

DEPARTMENT

THE

lREASURY (~~l
'w'\~. ~

TREASURY

NE
C W S

~
1-'<'
_ _ _ _ _ _ _~/78q;::..ll
_ _ _ _ _ _ __

OmCE OF PUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C.- 20220 - (202) 622-2960

EXCERPTS OF THE TRANSCRIPT OF
TREASURY SECRETARY LLOYD BENTSEN
PRESS CONFERENCE
ON G-7 SUMMIT IN NAPLES, ITALY
FRIDAY, JULY 08, 1994

LB-932

Lloyd Bentsen Press Conference
Excerpts
July 8, 1994

Question: Can you tell us what coordinated aotion you talked to
the Japanese about regarding the dollar?
Bent5en: I talked to them about cutting their income tax, which
they stated they would continue to cut. I then stated we vary
much encoura98 you to cut to a point where you are assured your
economy had recovered and was on its way to growth. And the
Fin~nce Minister assured me he would.
I certainly thought that
was encouraging.

Question:

Do you think further action needs to be taken to deal
with volatility?

Bentsen: I think the fundamentals will ultimately prevail. We
were urging the Japanese to do their tax cut and keep it in
effect until they were sure their economy had recovered. I can
remember last year they had a first quarter that was encouraqinq
and they thought it would carry that through but it did not.

Question:

Any talk with the Japanese about their lowering their

interest rates further?
Bentsen:

NQ we didn't discuss that.

Question:

Did the Japanese Prime Minister have specifio policies
on the exchange rates?

Bentsen: No.
beyond that.
intervention.
Question:

We share his concern. We did not get specific
And neither one of us talked about an

Have you thrown in the towel on intervention.

Bentsen: The one thing I don't comment on is our planned actions
in the future.
QUQstion:

When you talk that fundamentals will ultimately

prevail, how muoh stren9thening is necessary?
Bentsen: I'm not going to say when it reaches a .pecifio number
that's it.
Question:

Any discussion of further Japanese stimulus?

Bentsen; No there was not. I've said all along that we'd be
pleased if they further cut their discount rate. It's pretty
obvious that will be their decision to make.
LB-932

2
Quest~on:
Government reported stronq employment figures. See
anythlng in there that might require the Federal Reserve to take

some actions

Bentsen: At this point I don't. Unemployment 3tayed the same -just what the last one was. It's an indica~ion our
6 percent
investment in people is paying off and that growth is st~ll well

under way.
Question:
Bentsen:

Question:

No need for any action?
Not at this point.
What did you think of the new finance minister?

Bentsen: I thought he was a man careful in thought, being quite
prudent in hig answers, which is very understandable ror a person
who has just taken over a new jOb with a major responsibilit~.
To think that this new government after one week in office will
have a detailed set of plans is not rea11~y. You have to give
them some time.
I had a good meeting with the Finance Minister.

exchange.

Question:

An e~cellant

Any comment on the framework talks?

Bentsen: The proqress has been disappointing to this point.
We've made ~ome very minor progress in financial instruments, but
it's quite minor at this point. On the main targets -government procurement and automobile~ we've made very little

progress.
Question:

How much appreciation do you think is

nQca~gary?

Bentsen: I can't answer it. If I did answer it, then if I were
you I'd go call my agent or broker.
-30-

DEPARTMENT

IREASURY

THE

_~8'l~

TREASURY

NEWS
_____
••__

OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVH;;UE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622·2960

"The Philippines in the New International Economic Order"
Remarks by Jeffrey R. Shafer
Assistant Secretary for International Affairs
Before the American Chamber of Commerce
in The Philippines
July 8, 1994

I am delighted to be here in the Philippines and to have the opportunity to speak
before the American Chambers of Commerce. This is my third trip to the Philippines
since I came to Treasury. These visits, Secretary Bentsen's trip to Asia last January, and
those of Under Secretary Summers are good indications of the Treasury's growing
appreciation for the region's importance in the global economy.
We at Treasury believe in President Clinton's vision of an America that can
compete around the globe. You in the AmCham are doing just that. today I would like
to discuss this region's rapidly expanding role in the global economy. I will begin with
some general observations about emerging markets and the Clinton Administration's
policy towards them before addressing the Philippines directly.
I also want to focus on financial sector reform, not just because I am here in Asia
to discuss financial services, but because I firmly believe that financial services
liberalization is key to sustaining rapid, private-sector led growth in the countries of the
region.
To begin, let me make three observations on the situation facing emerging-market
countries today: first, we have a growing consensus on what policies produce sustained
growth and development -- a consensus based on experience; second that these policies
are working in countries with varied resources, cultures and of various sizes; and third,
that under the right circumstances, growth and development can be very rapid.

LB-933

The Developing Country Role in the New Order
Clearly there is on one blueprint for develop~ent.. Yet, increasingly, p~licymakers
and policy analysts alike, in a wide variety of countnes, cIte the same core polley
characteristics as necessary for success:
_ a sustained commitment to macroeconomic stability, including restraints on
public sector borrowing;
- the promotion of high private savings and investment rates;
_ an emphasis on developing the full productive potential of a nation by providing
adequate education to all members of society;
- steady progress in market-oriented reform, which means two things: It means
getting rid of heavy-handed state intervention in markets, and it means providing
for the fair and efficient administration of the laws and regulations that are the
rules of the game of a market economy;
- finally, a reliance on private financial markets, including international markets,
to mobilize savings and direct it towards productive investment.
This emerging consensus means that we can move beyond ideology in
development economics to an emphasis on what works. And it turns out that policies
which work can rapidly transform an economy in a wide variety of settings.
For example, the best performing countries of East Asia have demonstrated the
potential for telescoping the development process: their growth rates in the post-war
period have no equal in economic history. Per capita income in much of East Asia has
been doubling every 13 years. In the last 30 years, Korea grew as much as the United
States did in all of the last century. Hong Kong, Taiwan, and Singapore have gone from
extreme poverty to OECD income levels in a very short time. In Malaysia and
Indonesia, the total number of poor has been cut by more than half in the last 20 years.
This record shows that, within one generation, that there can be qualitative
improvements in living standards that benefit all segments of the population.
My last observation, on the diversity of success stories, is especially important
because it means that high growth and rapid development are spreading to countries of
greatly different sizes, resource endowments and cultural heritages. Such spreading of
strong performance was not always confidently predicted. For many years, economists
and others focused on Japan as a unique post war-war development success story. Then
the accomplishments of the four "Asian Tigers" were recognized. Again, many viewed
their experiences as unique, perhaps generated by cultural factors.

3
Yet, recent performance in other areas of South Asia and East Asia has
demonstrated that rapid growth and development can be replicated in any setting. And,
there are positive spillovers: success in one country improves prospects in other countries
within the region. This is good news for all developing economies in East Asia,
including the Philippines.
Before turning to the Philippines, however, I would like to give you a brief
overview of the Clinton Administration's strategy for this region and the world. I will
begin with the bottom line: This Administration has a vested interest in the sustained
growth and development of this region, and is supporting bilateral and multilateral
initiatives that promote this objective.
Clinton Administration Economic Strategy for the Asia-Pacific Region
The aim of U.S. international economic policy is to encourage continued rapid
development and its spread to an ever increasing number of countries. in our view,
economic strength abroad benefits the United States. it does not threaten us as long as
our economic partners share a commitment to an open, integrated, market-oriented
global system.
As I said, we want to compete in global markets. This means our prosperity
depends on growth of markets around the world. Shared prosperity promotes expanding
markets for American producers and more jobs for American workers. But shared
prosperity also promotes a shared stake in the international economic system and in the
peaceful resolution of conflicts. Prosperous societies are fertile ground for democracy
too -- a system of government in which internal differences must be accommodated
rather than suppressed. The tolerance required for democracies to function predisposes
them to seek accommodation rather than to engage in conflict with each other.
We are advocates for the multilateral system and multilateral institutions because
we believe they promote shared prosperity. President Clinton and Ambassador Kantor,
and many others of us in the Administration, rolled up our sleeves and worked hard to
complete the Uruguay Round. We are absolutely determined to pass it this year and we
are confident of success.
The multilateral development banks are also a top priority for us. The United
States strongly supported the doubling of the Asian Development Bank's capital from
$24 billion to $48 billion, which was approved last month by the ADB governors.
The capital increase agreement outlines the policy directions that will guide Bank
operations. They emphasize the importance of social sector lending, family planning and
the environment. Yet, they continue support for infrastructure investment, policy-based
landing, and private sector development. We welcome both the capital increase and the
Bank's vision for the future. I am going to personally deliver this message to President
Sato at the Bank this afternoon.

We also realize that there is no region more important to U.S. and global
economic prospects than the Asia Pacific. Even without the United States, the AsiaPacific region including Canada, Mexico, and Chile accounts for nearly 30 percent of
world output. With the United States, its is one-half of the world economy. About 80
percent of our exports already go the Asia-Pacific. We know this share will rise, driven
by sustained high growth rates for the foreseeable future. To help ensure this growth,
we also support APEC as a regional framework for economic cooperation, trade
liberalization and freer international investment. We have worked hard to promote
APEC's role because we are confident it can benefit all parties in the region.
When President Clinton hosted the first APEC Leaders' meeting in Seattle in
November, the message was clear and unmistakable -- the United States wants to build
cooperative relations at the very highest levels, based on mutual respect for each
economy's interest.
When Secretary Bentsen hosted the first APEC Finance Ministers meeting in
Honolulu in March, the message was equally clear. The spirit of that meeting was one
of shared interests and a desire to develop closer ties. Not surprisingly, when the
Finance Ministers got together, one thing they shared was an interest in capital flows. In
Honolulu there was a particular interest in the conditions for private capital flows to be
a stable and sustained source of funds for investment. This emphasis reflects the fact
that many APEC countries have conquered the major development challenge of
macroeconomic stabilization; they have unleased the power of the private sector, they
are developing human capital at a prodigious pace, and now they face the challenge of
sustaining strong growth and rapid development. In my view, an emphasis on financial
market development and integration with regional and global markets is called for to
meet this challenge. The Philippines fits this mold, even if there is more unfinished
business than in earlier movers to put firmly in place the basics of development.
Philippine Prospects for Joining Other High-Performing Countries in the Region
Just a few years ago, the question of how to sustain private capital inflows would
have been considered a foolish one in the Philippines. The focus would have been
exclusively on how to obtain official financial support or reduce external debt. Now
things are changing. The Philippine economy has come a long way:
o The Philippines has placed a premium on macroeconomic stability, which has
led to a decline in inflation and a return to growth.
a TI:e Philippi~es has pr.omoted savings and investment. Although savings lags
behmd others III the regIOn, on a world wide comparison it is not doing badly.
o The government has privatized over 81 companies.

5
o The Philippines has reduced trade barriers and lifted investment restrictions.
o And I understand that President Ramos has just taken another significant step
by opening several key services areas, including insurance and travel agencies, to 100
percent foreign ownership.
As in other parts of the world, the Philippine people and economy have quickly

responded to this breath of fresh air. Growth rose to 2.3 percent in 1993 and 4.8 percent
in the first quarter of this year. Staying on course with these policies should lead to still
more rapid growth. Exports are up and the external balance has improved. Inflation has
fallen to single digits and interest rates are down.
Private investors, both in and outside the Philippines, have also responded. Last
year, the Philippine stock market rose 132 percent in dollar terms and market
capitalization increased 250 percent. The Philippines have made a successful return to
the international capital markets. And interest in direct investments here is on the
upswmg.
At the same time, one major area where I believe inefficiency and distortions
have imposed large costs on the Philippine economy is in the financial sector. I would
like to spend some time on financial reform because I believe development in this sector
will help advance economic development in the whole country. The Philippines has
taken an important step forward in enacting a bank reform law. The entry of up to 10
new foreign banks will bring new sources of innovation, greater competition and
diversified funding to the Philippines' market. Since foreign banks will be able to
operate as universal banks, the strength they will bring will be felt across the Philippines
money and capital markets. This new law is an initial building block toward an essential
goal: a competitive and efficient Philippine financial system.
I believe the time is ripe for the Philippines to move further towards this goal.
Growth is being constrained by infrastructure bottlenecks, and official sources of capital,
whether from domestic or international sources, cannot possibly meet the Philippines'
financial needs. Nor will official channels direct resources as efficiently as competitive
markets. Only a liberalized financial system, that is linked to global and regional
markets, can provide the funding and the full range of financial services that are vital for
investment, and growth, to be sustained.
The Importance and Benefits of Financial Sector Liberalization
To drive this point home, I would ask you to consider what can happen in a
closed financial system. Protected, inefficient banking systems fail in a basic function
critical to development progress: financial intermediation, that is channeling resources
from savings to investment. They fail by raising the costs of intermediation through large
spreads between deposit and lending rates. But they also fail by lowering overall savings

and investment rates. The Philippines has seen this in the past. Economies with a
cultural inclination toward high savings can perhaps get along for a while with poor
intermediation systems. But the capital needed .in this r~gi~~ to sust~in hi?h growth
rates is progressively raising the costs and reducmg the VIabilIty of thIS optIOn.
Of course, we are now operating in a world where Asian borrowers, particularly
large firms, are pursing other alternatives -- global bond and equity markets and
domestic securities markets. These alternatives are essential to finance large, long-term
projects given the limited maturity of most bank lending in the region.
But these alternatives only increase pressure on inefficient banking sectors which
are having increasing difficulty attracting customers and deposits. It is clear that
securities markets in the region must be progressively liberalized to provide alternative
means of raising capital appropriate to maturing economies. it is also clear, however
that securities market liberalization and development in order to prevent further damage
to already weak banking sectors and to the middle range of private companies that can
best be served by banks.
Generally, countries in the region are moving forward in the process of financial
liberalization, convinced that it is in their interest. Nevertheless, we are hearing a
number of arguments advocating a slow-down. The most prevalent is that a country
should delay opening to foreign banks until competition has been increased domestically
and the domestic system is fully developed and competitive.
My first response to that claim is that this approach simply will not work for
financial firms any more than it works for other sectors. protection does not strengthen
industries and it does not foster efficient development. It took more years of wasted
opportunity and stagnation in a range of countries before governments realized that
producers did not become competitive and efficient if they could lean on the crutch of
government protection. I hope time and opportunity will not be wasted trying to develop
the financial sector the same way. Vested interests will be nurtured, not the financial
system, and it will become even harder to move later.
Protection of financial institutions is particular costly because of the effects of
high capital costs in lowering competitiveness across the entire economy. Companies
which can, will go offshore to raise money. This will further impede domestic financial
market development. Capital controls may limit access to global markets, but they do
not affect all businesses the same. Companies that do not have access to offshore capital
are at a .disadvantage co.~pared to those that do. And those with advantage are not
necessa~ly the more effICient or the more competitive. Ai) a result, protectionism may
be favonng the losers rather than the winners. The same can be said for the results of
policies that provide preferential domestic credits for some firms or industries.

Now in saying that protection is not the way to build a strong domestic financial
sector, I am not arguing that all controls should come off overnight. A big-bang
approach can have short-term costs. And a gradual approach will provide comfort for
doubters as the waters are tested. What is needed is a commitment to increasing
openness at a good pace. This is one of the chief messages I am here in East Asia to
deliver. And I am encouraged here by the step that is being taken in banking. Positive
results from this should provide a basis for going further.
Conclusion
Let me conclude by stressing that I have not come here simply to recite the
interests of the U.S. financial committee. Instead I have argued for the benefits of
financial liberalization for the liberalizing economy. My overall point is this: after
decades of debate over whether or not any "right path existed for development, there is
growing agreement that at the very least, this path must include certain policies, like a
sustained commitment to macroeconomic stability. The Philippines has embarked on
this path, and we are already seeing results. Now, it is my hope that the Philippines can
benefit from the ample evidence in the world that financial liberalization is critical for
sustained success, and will continue to move along this path.
I would also like to conclude by remarking on something I have not addressed
today: investing in the social sector. I began by noting a number of elements that are
beginning to emerge as necessary components of a successful development strategy. The
elements I expanded on, like macroeconomic stability and financial liberalization, reflect
an emphasis on where the state does not belong. But for development to really succeed
we need to make governments as effective force as a catalyst for growth and as protector
when markets fail. That's why I included education as one of the critical elements of
development, and that's why the United States supported a new emphasis on social
sector lending in the Asian Development Bank's capital replenishment.
With the help of this institution and through our new multilateral channels like APEC, I
am confident that we can we rise to the newest challenges of development here in the
Philippines and elsewhere in the region. And I will look forward to having future
opportunities to visit a region that has taught the world so much about growth and
development.
-30-

DEPARTMENT

THE

TREASURY

NEWS

lREASURY

OFFICE OF PUBliC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

Contact: Rebecca Lowenthal
(202) 622-2960

FOR IMMEDIATE RELEASE
July 8, 1994

TREASURY TO UNVEIL POSSIBLE FEATURES FOR NEW U.S. CURRENCY DESIGN
Representatives from the Treasury Department will describe features under
consideration for are-designed U.S. currency in testimony before the House Banking
Committee next week.
Scheduled to testify are Treasury Undersecretary for Domestic Finance Frank
Newman, U.S. Treasurer Mary Ellen Withrow, U.S. Secret Service Deputy Director Guy
Caputo, and Bureau of Engraving and Printing Director Peter H. Daly.
The hearing will be at 10 a.m. on Wednesday, July 13 in Room 2128, Rayburn
House Office Building.
-30-

LB-934

NEWS
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960

FOR RELEASE AT 12:00 NOON
July 11, 1994

CONTACT:

Office of Financing
202/219-3350

TREASURY TO AUCTION CASH MANAGEMENT BILL

The Treasury will auction approximately $6,000 million
of 69-day Treasury cash management bills to be issued
July lS, 1994.
Competitive tenders will be received at all Federal
Reserve Banks and Branches. Noncompetitive tenders will
DQt be accepted.
Tenders will not be accepted for billa to
be maintained on the book-entry records of the Department
of the Treasury (TREASURY DIRECT). Tenders will not be
received at the Bureau of the Public Debt, Washington,
D. C.

Additional amounts of the bills may be issued to
Federal Reserve Banks as agents for foreign and international monetary authorities at the average price of
accepted competitive tenders.
This offering of Treasury securities is governed by
the terms and conditions set forth in the Uniform Offering
Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Tr@asury bills, notes,
and bonds.
Details about the new security are given in the
attached offering highlights.
000

Attachment

LB-935

HIGHLIGHTS or TREASURY OFFBRING
or 69-DAY CASH HANAG!M!NT BILL
July 11, 1994
Offlring

Amount . . . . .

$6,000 million

D•• cription of Off.rinq:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date.
Currently outstanding
.
Minimum bid amount . . . .
Multiples. . . . . .
Minimum to hold amount
Multiples to hold
I

•

I .

" "

69-day Cash Management Bill
912794 L7 7
July 13, 1994
July 15, 1994
September 22, 1994
September 23, 1993
$40,810 million
$1,000,000
$1,000,000
$10,000
$1,000

Submil.ion of Bid.:
Noncompetitive bids
Not accepted
Competitive bids . . . (1) Must be expressed as a discount rate
with two decimals, e.g., 7.10%.
(2) Net long position for each bidder must
be reported when the sum of the total
bid amount, at all discount rates, and
the net long position is $2 billion or
greater.
(3) Net long position must be determined
as of one half-hour prior to the
closing time for receipt of competitive tenders.
Maximum R.cognized Bid
at a Single Yi.la

•

. 3St of public offering

Maximum Award . . . . .
Receipt of Tenderg:
Noncompetitive tenders
Competitive tenders . . .
Payment

T.~,

. . . . . . .

35% of public offering

Not accepted
Prior to 1:00 p.m. Eastern Daylight
Saving time on auction day
Full payment with tender or by charge
to a funds account at a Federal
Reserve Bank on issue date

UBLIC DEBT NEWS
Department of the Treasury • Bureau of th~ Public Debt - Washington, DC 20239

FOR- IMMEDIATE RELiASE
July 11, 1994

CONTACT: Office of Financing

202-219·3350

RES'O'IlI'S OF TRlASURY' S AUCTION OF 13 -WEEK BILLS

Tenders tor $12,048 million ot 13-week bills to be issued
July 14, 1994 and to mature October 13, 1994 were
aecepted today (CUSIP: 912794N67).
RANGE OF ACCEPTED

COMPETITIVE BIDS:

I>iBCQunt

Low
High

Avera.ge

Rite

4.47\'

4.S0t
4.50,"

Investment
Rate

Price

4.58'
4.61\'

99.870
98.863

4.61'

98.863

$9,080,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 7St.
The investment rate is the equivalent coupon-issue yield.
TENDBRS RBCEIVBD AND ACCEPTED (in thousands)
&i:c~;i.X=g

TOTALS
Type

Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Otficial
Institutions
TOT~

Accegtlg

$41,217,737

$12,048,109

$35,514,980

$6,345,352

$36,941,676

1,i2~,i2i

•• i2~,~~§
$7,772,048

3,205,620

1,g2g,~il

$41,21.7,737

• ..a:zg, ~~l

$12,048,109

An additional $208,959 thousand of bills will be
issued to foreign official institutions for new cash.

4.35 - 98.900, 4.44 - 98.878, 4.48 - 98.868, 4.49 - 98.865

LB-936

12708306

P.02

UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Walhington. DC 20239

FOR IMMEDIATE RELEASE
JUly 11, 1994

CONTACT: Office of Financing
202-219-3350

RESULTS 0' TREASURY" S AUCTION OF 26-WEEK BILLS

Tenders for $12,064 million of 26-week bills to be issued
July 14, 1994 ana to mature January 12, 1995 were
accepted today (COSIP: 912794P81).
RANGE OF ACCEPTED

COMPETITIVE BIDS:

Discount

Low
High
Average

Rate
4.91%
4.94'
4.94%

Investment
Rate

Price

5.10'
5.14t
5.14t

97.518
97.503
97.503

$50,000 was accepted at lower yielas.
Tenders at the high discount rate were allotted 85%.
The investment rate is the equivalent coupon-issue yield.

TENDERS RECEIVED AND ACCEPTED (in thousands)
Rec@ived
TOTALS

$12,063,726

$38,423,'71
1,217.756
$39,641,221

$6,492,811
1.217·7§§
$7,710,567

3,200,000

1,153,159

1.153.1S2
$12,063,726

Type

competitive
Noncompetitive
Subtotal, PUblic
Federal Reserve

Foreign Official
Institutions
TOTALS

Accepted

$43,994,386

An additional $224,841 thousand ot bills will be
issued to foreign o~ticial institutions fo~ new cash.
4.75 - 97.599 , 4.80 - 97.573, 4.92 - 97.513, 4.93 - 97.508

LB-937

PUBLIC DEBT NEWS
Department of the Treasury •

Bureau of the Public Debt • Washington, DC 20239

FOR IMMEDIATE RELEASE

Contact: Peter Hollenbach
(202) 219-3302

July 11, 1994

BlJREAU OF THE PUBLIC DEBT AIDS SAVINGS BONDS OWNERS
IN ALABAMA AND GEORGIA AFFECTED BY FLOODS

The Bureau of Public Debt took action to assist victims of the flooding that struck both
Alabama and Georgia by expediting the replacement or payment of United States Savings

Bonds for o'w'.'TIers in the affected areas. The emergency procedures are effective
lIrunediately for paying agents and owners in those areas of Alabama and Georgia hit by
floods. These procedures are effective immediately and will remain in effect through August
31. 1994
h:bhc Debt's action waives the normal six-month minimum holding period for Series EE

sZlvmgs bonds presented to authorized paying agents for redemption by residents of the
.:r:c:cted area. Most financial institutions serve as paying agents for savings bonds.
The replacement of bonds lost or destroyed will aLso be expedited by Public Debt. Bond

o",ocrs shodld complete form PD-1048, available at most financial institutions or the
Federal Reserve Bank. Bond owners should include as much information as possible about
the lost bonds on the form. This information should include how the bonds were inscribed,
SOCial security number, approximate dates of issue, bond denominations and serial numbers
If available. The completed form must be certified by a notary public or an officer of a
fmancial m~titution. Completed forms should be forwarded to Public Debt's Savings Bonds
Operations Office located at 200 Third St., Parkersburg, West Virginia 26106·1328. Bond
ov. ners should write the word "Floods" on the front of their envelopes to help expedite the
processmg of claims.

000

PA-152

DEPARTMENT

THE

IREASURY ~r~.·:··"r'l"~. ~.+~ ~~,.
~.

TREASURY

NEW S
.

..1I................................1-~~1789

OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622·2960

FOR IMMEDIATE RELEASE
July 11, 1994

Contact: Hamilton Dix
(202) 622-2960

MUNOZ ELECTED TO INTERAGENCY FINANCIAL COUNCIL POST
George Munoz, Assistant Secretary of the Treasury for Management, has been elected
to a top post in the federal government's financial officers association.
Muiioz, who is also Treasury's Chief Financial Officer, will serve a two year term as
Executive Vice Chairman of the Council of Chief Financial Officers, its highest elected office.
The Council is made up of Chief and Deputy Chief Financial Officers of federal agencies and
is chaired by the Deputy Director for Management, Office of Management and Budget.
"It's an honor to have our Assistant Secretary Munoz elected to this prestigious body.
I'm certain the he will serve the Council in the same outstanding manner that he serves at
Treasury," said Treasury Secretary Lloyd Bentsen.
Created by the Chief Financial Officers Act in 1990, the Council serves as a forum to
help monitor progress, resolve problems, provide coordination and develop consensus on new
directions in financial management. This is the first year the Council has elected officers.
Munoz strongly supports the need for sound leadership and joint efforts on common
problems across the federal government. "More accountability can only be met with better
financial management. The Council is establishing financial management that can render a
true picture of how well government programs are performing," said Munoz.
-30LB-938

DEPARTMENT

THE

TREASURY

NEWS

~~/78~q~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

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

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
July 12, 1994

Contact: Hamilton Dix
(202) 622-2960

NOBLE SWORN IN AS UNDER SECRETARY OF THE TREASURY ( ENFORCEMENT)
Ronald K. Noble was sworn in on July 7 as Under Secretary of the Treasury
(Enforcement), a position established earlier this year by Congress at the request of the
Administration.
President Clinton nominated Noble to be Under Secretary in April 1994. Before that
time, Noble served as Assistant Secretary of the Treasury (Enforcement).
As Under Secretary, Noble directs Treasury law enforcement. The Treasury
Department plays a substantial law enforcement role, with oversight responsibility for the
Bureau of Alcohol, Tobacco and Firearms; the Customs Service; the Secret Service; the
Criminal Investigative Division of the Internal Revenue Service; the Federal Law Enforcement
Training Center; the Financial Crimes Enforcement Network; and the Office of Foreign Assets
Control. Noble is the highest-ranking African American in the history of federal law
enforcement.
From 1989 until joining Treasury, Noble was a law professor at New York University
School of Law. He also served as deputy assistant attorney general at the Justice Department.
He served as an assistant U.S. Attorney in the Eastern District of Pennsylvania from 1984 to
1988, successfully prosecuting Philadelphia's largest public corruption case and a $50 milliona-year cocame nng.
Noble earned a J.D. from Stanford Law School, where he served as articles editor of
the Stanford Law Review, and a B.A. from the University of New Hampshire, where he
majored in Economics and Business Administration. Noble was born in Fort Dix, N.J.
-30LB-939

DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.

JNDER SECRETARY

RONALD K. NOBLE
UNDER SECRETARY FOR ENFORCEMENT

Ronald K. Noble was sworn in as the first Treasury Under Secretary for Enforcement
on July 7, 1994. This new post was created by a 1993 law to reflect the Treasury Department's
important and growing role in federal law enforcement.
Noble oversees the Office of Enforcement, which includes the Bureau of Alcohol,
Tobacco and Firearms; U.S. Customs Service; U.S. Secret Service; Financial Crimes
Enforcement Network; Office of Foreign Assets Control; Federal Law Enforcement Training
Center; and Executive Office of Asset Forfeiture. These bureaus have a combined workforce of
over 29,000 employees and a budget of approximately $2.4 billion. Noble is also responsible
for providing law enforcement policy guidance to the Criminal Investigation Division of the
I.R.S. In total, the Treasury Department contains one-third of all federal criminal investigators.
Under Noble's leadership, a comprehensive White House Security Review was completed
to ensure an appropriate level of protection for the President; the Customs Service began a
historic reorganization; a Tax Refund Fraud Study was conducted to reduce systemic fraud; ATF
implemented the assault weapons ban and the Brady Handgun Violence Prevention Act; and the
Financial Crimes Enforcement Network was restructured to use regulatory authority and private
sector partnerships to deter and detect money laundering.
To deal with the growing problem of international organized crime, Noble has fostered
a closer working relationship between Treasury Enforcement and the international law
enforcement and financial communities. He serves on INTERPOL's Executive Committee;
INTERPOL embraces the police organizations of 176 countries. Additionally, Noble is
President-elect of the Financial Action Task Force, a multi-lateral body of 26 countries created
by the G-7 to fight international money laundering.
Noble was promoted to Under Secretary after serving as Treasury's Assistant Secretary
for Enforcement, a Presidential appointment he held since May 1993. He was widely credited
in that post for leading a candid and comprehensive investigative review of ATF's raid of the
Branch Davidian Compound near Waco, Texas. Before joining the Treasury Department, Noble
was an Associate Professor at the New York University School of Law. From 1988 to 1989,
Noble served as Deputy Assistant Attorney General, Special Counsel, and Chief of Staff at the
U.S. Justice Department's Criminal Division in Washington, D.C.
Noble began his public service career in Philadelphia, where he was an Assistant U.S.
Attorney from 1984 to 1988. Noble was noted for his prosecution of major cases involving
public corruption and drug trafficking. He successfully prosecuted each case taken to trial. In
Philadelphia, Noble also served as Senior Law Clerk to the Honorable A. Leon Higginbotham,
Jr., of the U.S. Court of Appeals for the Third Circuit.
Noble earned a J.D. from Stanford Law School in 1982, where he served as Articles
Editor of the Stanford Law Review and president of his graduating class. Noble received a B.A.
in Economics and Business Administration, cum laude, from the University of New Hampshire
in 1979. He was born in Fort Dix, New Jersey.

NEWS
OFFICE OF PUBliC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622·2960

FOR RELEASE AT 2:30 P.M.
July 12, 1994

CONTACT:

Office of Financing
202/219-3350

TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $24,800 million, to be issued July 21,
1994. This offering will provide abo~t $250 million of new cash
for the Treasury, as the maturing bills are outstanding in the
amount of $24,555 million.
Federal Reserve Banks hold $6,372 million of the maturing
bills for their own accounts, which may be refunded within the
offering amount at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $2,074 million as agents for
foreign and international monetary authorities, which may be
refunded within the offering amount at the weighted average
discount rate of accepted competitive tenders.
Additional
amounts may be issued for such accounts if the aggregate amount
of new bids exceeds the aggregate amount of maturing bills.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C.
This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of the new securities are given in the
attached offering highlights.
000

Attachment

LB-940

HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED JULY 21, 1994

July 12, 1994
Offering Amount

Description of Offering:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Currently outstanding
Minimum bid amount
Multiples

$12,400 million

91-day bill
912794 LS 5
July lS, 1994
July 21, 1994
October 20, 1994
October 21, 1993
$27,765 million
$10,000
$ 1,000

lS2-day bill
912794 P9 9
July lS, 1994
July 21, 1994
January 19, 1995
July 21, 1994
$10,000
$ 1,000

The following rules apply to all securities mentioned above:

Submission of Bids:
Noncompetitive bids
Competitive bids

Maximum Recognized Bid
at a Single Yield

35% of public offering

Maximum Award .

35% of public offering

Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms

Prior to 12:00 noon Eastern Daylight Saving time
on auction day
Prior to 1:00 p.m. Eastern Daylight Saving time
on auction day
Full payment with tender or by charge to a funds
account

Federal

Reserve

Bank on

issue date

DEPARTMENT

THE

TREASURY

~~178fg~·. . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .

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

OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960

Department of the Treasury
Abbreviated Statement of
George Munoz
Assistant Secretary (Management)/
Chief Financial Officer
before the
House Committee on Government Operations
Subcommittee on Commerce, Consumer and Monetary Affairs
July 13, 1994
Mr. Chairman and Distinguished Members of the Subcommittee:
Good morning. I am pleased to be here and have this opportunity to discuss the
experiences of the Department of the Treasury in implementing the Chief Financial Officers
(CFO) Act of 1990. I have previously submitted my statement for the record. If I may, I
would like to dispense with reading my entire statement and limit my remarks to the
highlights of Treasury's CFO Act implementation.
It is my firm belief that Treasury has a good story to tell. Overall, implementing the

CFO Act has been a positive experience, and we are proud of the accomplishments we
have made. Treasury has substantially complied with the provisions of the Act.
However, we recognize that all of us at Treasury have much work to do, until we can get
to our goal of receiving unqualified audit opinions for all Treasury entities.
Implementation Actions at Treasury
I want to emphasize that the Department of the Treasury has been a very
enthusiastic supporter of the CFO Act since the beginning. And we continue to take
many actions to help ensure full implementation of the Act. Soon after the Act was
passed, we developed a comprehensive plan to ensure proper implementation of the Act
within the Department. In carrying out our plan, we made organizational changes,
revised many internal policy directives, consolidated financial management
responsibilities under the Department's CFO, and established the Financial Management
Council. We also completed various studies in key areas to assist with our
implementation efforts - financial statement preparation, integrated financial systems,
financial reports filing procedures, and performance measures. We also developed a
financial statement model to assist our bureaus. The results of these efforts have been
shared Government-wide.
LB-941

-2We have been addressing CFO training needs through a variety of sources such
as the Department's Center for Applied Financial Management, the Treasury Executive
Institute, the George Washington University Federal.Financial Management Program,
the Treasury Inspector General's Auditor Training Institute, and rotational
developmental assignments in the Department's CFO organization.
Other initiatives we have completed include the revision of the Department's
Accounting Principles and Standards Manual; the provision of guidance and financial support
for financial systems improvements; conversion to a common payroll system; the
establishment of a new Office of Financial Systems and Reports, and the formation of the
Financial Management Systems Advisory Committee.
Another initiative we are especially proud of is the voluntary submission of the
Bureau of Engraving and Printing's audited financial statements and CFO Annual Report
several months ahead of OMB's established schedule. The Bureau completed this task with a
quality submission, which illustrates that this objective can be attained in bureaus with
experience in producing annual financial statements.
Of course, one of Treasury's highest priorities has been improving its financial
management performance. This commitment will continue. Much has been accomplished,
but much remains to be done.

Follow-up to the Department's System Integration Report
Mr. Chairman, in your invitation letter you stated that the Subcommittee was very
interested in the status of the Department's Financial Management Systems Integration
Study Team Report. I am very pleased to report to you that Treasury has either completed
or has in process many actions in response to all 15 recommendations in the report. We
have established the Financial Management Systems Advisory Committee, reduced the
number of core financial management systems used within the Department, established
financial management systems standardization principles, and completed a draft requirements
document for Departmental database. Three of our bureaus will serve as pilots for this
database this fiscal year. We will continue implementing this study's recommendations in
order to streamline and improve our financial management systems.
Progress Made at CFO Act designated Treasury Bureaus
We are both encouraged and challenged by the results of this year's CFO Act audits.
Approximately $1.2 trillion, or 80 percent, of the Department's total collections and
expenditures were audited. This year's audit results reflect improvement in that seven of the
eleven entities received unqualified audit opinions, as compared with only four out of ten in
fiscal year 1992.

-3I want you to know that Treasury is very aware of the three disclaimers it received.
The Internal Revenue Service and U.S. Customs Service again received disclaimers of
opinion on their financial statements. Nonetheless, the General Accounting Office noted
significant efforts and progress by both bureaus toward resolving their long standing financial
management problems. And the U.S. Mint, while receiving a disclaimer on its fiscal year
1993 operating statements, received an unqualified opinion on its statement of financial
position. The Mint had received an overall disclaimer for fiscal year 1992.
Actions to ensure these disclaimers do not continue have been taken by Secretary
Bentsen on down. Concerned with the 1992 disclaimers, the Secretary submitted the
Department's fiscal year 1993 Federal Managers' Financial Integrity Act Report to the
President and Congress with a commitment for cleaning up the problems identified by the
General Accounting Office. Further, the Secretary met individually with the Bureau Heads
and CFOs of IRS, Customs and the Mint to personally deliver this message and obtain the
same commitment from each bureau.
While Treasury is pleased with the progress being made, we realize that pervasive
problems remain to be corrected, particularly in our revenue collection activities. Plans have
been developed and are being implemented to remedy these problems; one of the
Department's highest financial management priorities is to produce timely, useful financial
statements which receive unqualified audit opinions. I am working with our bureau CFOs to
achieve this objective as soon as possible.
Treasury's Plan for the Future
We realize we have our work cut out for us. The importance of sound fmancial
management practices and useful financial information have long been neglected throughout
the Federal Government, and the resulting problems we face today will not be corrected
overnight. However, I am confident that we are making, and will continue to make,
Significant progress. The CFO Act is yielding many positive results, not the least of which
is simply the identification of problems that need fixing. Many of our ongoing initiatives to
improve financial management across the Department have been previously discussed. I
would like to add that we have established a Departmental CFO Council, and developed
Department-wide financial management priorities. We are working to expand financial
statement audit coverage to the entire Department, pressing for positive change through the
Government-wide CFO Council, and emphasizing training needs.
Recommendations to the Subcommittee
Mr. Chairman, this Subcommittee can be of tremendous assistance to the Department,
and to all other agencies, in helping us achieve the goals of the CFO Act. In addition to
your demonstrated strong interest in the CFO Act itself, I would like to enlist your support in
several key areas. I urge you to carefully consider my discussion of these areas in my
prepared statement.

- 4 -

I believe we need to maintain broad CFO organizational structures. While it might
appear that having responsibility over many diverse functional areas might dilute the time I
have for strictly CFO matters, in reality it provides me with important leverage in improving
the Department's financial management. This CFO set up works well at Treasury - I am
confident it will work at other agencies.
We need to emphasize the need for investing in our financial management
infrastructure now if we want to truly achieve the CFO Act's goals, by sending a stronger
message of the need to invest more in training our financial managers so they can become
skilled in the new practices and technologies, and investing more in financial systems so we
can fully utilize current and future technological advancements. I also request that the
Subcommittee endorse the new structure of the Government-wide CFO Council, and
recognize the CFO Council as a vehicle for change. The Council recently adopted a new
structure that provides for elected officers, expanded membership, and other important
changes. I think a strong endorsement of these changes by the Subcommittee would provide
the new Council with a greater impetus to strive for making the concrete improvements we
all want to achieve.
Thank you, Mr. Chairman. This concludes my remarks this morning. I would be
pleased to address any questions you or the Members of the Subcommittee may have.
-30-

VBLIe DEBT NEWS
Department afthc Treasury., Bureau afthe Public Debt • Washington, DC 20239

FOR IMMEDIATE RELEASE"
July 13, 1994
-L.;L

..;~

.•

~ 1';,.J

CONTACT: Office of Financing
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 69-DAY BILLS
Tenders for $6,035 million of 69-day bills to be issued
July 15, 1994 and to mature September 22, 1994 were
accepted today (CUSIP: 912794L77).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average

Discount
Rate
4.32%
4.34%
4.33%

Investment
Rate
4.42%
4.44%
4.43%

Price
99.172
99.168
99.170

Tenders at the high discount rate were allotted 1%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS

LB-942

Received
$41,740,000

Acce:gted
$6,034,500

$41,740,000
0
$41,740,000

$6,034,500
0
$6,034,500

0
$41,740,000

0
$6,034,500

DEPARTMENT

THE

TREASURY

lREASURY
(fif~
NEW
S
....................~.~~'~~;~~.V...................
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. _ 20220 _ (202) 622.2960

Department of the Treasury
Statement of
George Munoz
Assistant Secretary (Management)/
Chief Financial Officer
before the
House Committee on Government Operations
Subcommittee on Commerce, Consumer and Monetary Affairs
July 13, 1994
Mr. Chairman and Distinguished Members of the Subcommittee:
Good morning. I am ple,ased to be here and have this opportunity to discuss the
experiences of the Department of the Treasury in implementing the Chief Financial
Officers (CFO) Act of 1990. It is my firm belief, that Treasury has a good story to tell.
Overall, it has been a positive experience, and we are proud of the accomplishments we
have made. Treasury has substantially complied with the provisions of the CFO Act.
However, we recognize that all of us at Treasury have much work to do, until we can get
to our goal of receiving unqualified audit opinions for all Treasury entities.
As you know, when the CFO Act was first passed, it required all revolving funds

and commercial type activities to be audited for fiscal year 1991. Initially, this resulted
in seven Treasury entities being audited for fiscal year 1991. (One small fund, the Check
Forgery Fund, subsequently ceased operations, and therefore was not audited after FY
1991.) Waivers were granted for the Internal Revenue Service and the U.S. Customs
Service for preparation and audit of the fiscal year 1991 financial statements because
they were specifically designated in the Act as pilots (due to the revenue collection
functions) to prepare agency-wide financial statements for fiscal year 1992. Since the
initial seven audits of fiscal year 1991, Treasury coverage has grown to eleven audits for
fiscal year 1993.
Treasury's Support of the CFO Act
Treasury's actions have demonstrated strong support of the CFO Act and its
intentions to improve financial management practices and make them more effective
within the Federal Government. Immediately upon passage of the Act, Treasury took
several initial steps to help ensure a successful implementation of the Act.
LB-943

-2For example, we:
•

Developed an Implementation Plan -- Upon enactment of the CFO Act,
Treasury prepared a CFO Act implementation plan that was approved by
the Office of Management and Budget;

•

Ensured Follow-Through for Our Plan -- Following OMB approval of
Treasury's CFO Act implementation plan, a CFO and Deputy CFO were
appointed. Our original Deputy CFO, Ed Verburg, is still in that position
today. Although there have been three CFOs at Treasury since inception
of the Act, the stability of the Deputy CFO has provided the continuity
needed to keep the momentum going for implementation of our plan;

•

Transferred Revenue Systems Responsibilities to CFO -- Responsibilities
for the Oversight of Treasury's bureau specific revenue systems, such as the
Internal Revenue Service and U.S. Customs Service, were transferred from
the Fiscal Assistant Secretary to the Assistant Secretary
(Management)/Chief Financial Officer to centralize systems responsibilities
under the Department's CFO;

•

Developed Plan for Department-wide Coverage -- The Department
submitted an action plan for the preparation and subsequent audit of
bureau financial statements for the approval of the Office of Inspector
General;

•

Initiated Early GAO Involvement -- The Department's CFO wrote to
Comptroller General Bowsher requesting that an informal pilot project
between GAO and Customs be established in 1991 -- one year ahead of
what the Act required for Customs -- to develop financial statements that
will not only meet the requirements of the Act, but will provide an
example which will be helpful to other agencies; and

•

U sed the Department's Automated Tracking System .- The Inventory,

Tracking and Closure Systems is used as the basis for tracking the status of
management's corrective actions needed to eliminate the Inspector General
and General Accounting Office audit findings.
Implementation Actions at Treasury
I want to emphasize at every opportunity that the Department of the Treasury has
been a very enthusiastic supporter of the CFO Act, not only from the beginning, but we
continue to methodically take many actions to help ensure full implementation of the
Act. As I stated before, soon after the Act was passed, Management developed a
comprehensive plan to ensure proper implementation of the Act within the Department.

-3-

Some of the more significant actions completed from the implementation plan
include:
•
Made Organizational Changes .- We realigned financial management
responsibilities to conform to the Act's requirements, with particular
emphasis on the CFO's responsibility for financial systems development;
•

Revised Many Internal Policy Directives .- We consolidated Departmentwide financial management responsibilities under the Department's CFO;

•

Established a Financial Management Council •• This group is composed of
Departmental and Treasury bureau senior financial managers and
representatives from the Office of Inspector General. The Council's
primary function is to address the Act's financial statement preparation and
audit issues; and

•

Completed Substantial Reports and Guidelines -- Under the direction of
the Financial Management Council, Management:
Performed an interagency survey of "lessons learned" in the financial
statement preparation and audit process;
Performed an in-depth study of the options available to develop an
integrated, Departmentwide financial management system, which is
the basis for ongoing efforts in this area;
Performed a study of financial report filing procedures, which
includes recommendations on how to ensure necessary CFO review
and approval of financial reports;
Developed a Comprehensive Financial Statement Model to serve as
guidance for all Treasury entities; and
Worked extensively with the bureaus, the Office of Management
and Budget, and many other interested parties, to develop
comprehensive, meaningful program and financial performance
measures, which we will continue to refine.
The results of these efforts have been shared Government-wide with all
Departments and agencies.

-4•

Addressed CFO Training Needs •• The Department's CFO organization is
supporting a wide variety of financial management training initiatives,
including:
Development of financial management courses offered by the
Center for Applied Financial Management of the Financial
Management Service;
Development of seminars conducted by the Treasury Executive
Institute;
Working with George Washington University to develop a
curriculum in Federal financial management;
Development of a prototype Departmental Financial Management
Honors Program;
Initial budgetary support for the Treasury Inspector General's
Auditor Training Institute, which is now self-supporting;
Active participation in financial management conferences (e.g., Joint
Financial Management Improvement Program, Association of
Government Accountants);
Rotational developmental assignments in the Department's CFO
org:..nization; and
Working towards the development of standard courses in the
management controls area.

Additionally, Treasury has:
•

Completely revised and reissued the Department's Accounting Principles
and Standards Manual·· This manual provides Treasury's bureaus with
guidance in this important area;

•

Provided Guidance and Financial Support for Financial Systems
Improvements .• We support the use of off-the-shelf financial system
software packages by the bureaus, which has led to a high level of
standardization throughout the Department;

•

Established a New Office of Financial Systems and Reports •• This office
provides additional focus on the development of an integrated
Departmentwide financial management system;

-5 -

•

Formed a Financial Management Systems Advisory Committee -- This
group coordinates the standardization of ancillary systems throughout the
Department;

•

Volunteered to Submit an Audited Financial Statement Several Months
Ahead of OMB's Established Schedule -- The Bureau of Engraving and
Printing completed this task with a quality submission, which illustrates that
this objective can be attained in bureaus with experience in producing
annual financial statements;

•

Converted All of Treasury to a Common Payroll System -- This was
accomplished through a cross-servicing arrangement with the Department
of Agriculture;

•

Increased the Level of Departmental Emphasis on Bureau Five-Year
Financial Management Plans -- We have ensured that financial systems
projects are in accordance with Departmental goals and that appropriate
funding has been requested in the bureaus' budget submissions; and

•

Continued Our Emphasis on Having a Strong Federal Managers'
Financial Integrity Act/Management Control Improvement Program -This allows the Department to closely monitor progress by our bureaus in
addressing identified deficiencies.

One of Treasury's highest priorities has been improving its financial management
performance. This commitment will continue. Much has been accomplished, but much
remains to be done.
Follow-up to the Department's System Integration Report
Mr. Chairman, in your June 15, 1994 invitation letter to me you stated that the
Subcommittee was very interested in the status of the Department's Financial
Management Systems Integration Study Team Reporl. I am very pleased to report to you
that Treasury has either completed or has in process many actions in response to all 15
recommendations in the report.

-6-

Some of the more significant actions we have taken are as follows:

•

Established the Financial Management Systems Advisory Committee •.
This group is responsible for developing recommendations on standardizing
financial management and revenue systems;

•

Reduced the Number of Core Financial Management Systems •• We have
reduced the number of core systems from nine to four in the last four
years. In fiscal year 1989 there were 9 systems in Treasury's 11 bureaus.
In fiscal year 1994 there are 4 systems in Treasury's 12 bureaus. And
finally, our goal is to be reached in fiscal year 1996 when we intend to have
only 2 systems within all of Treasury's 12 bureaus;

•

Completed a Draft Requirements Document for Departmental Database·This document describes the financial information requirements for our
Department-wide integrated database. We will begin a phased-in
implementation of the Departmental Database with live data transfer from
three pilot bureaus: (1) uses; (2) IRS; and (3) ATF in September 1994;

•

Established Financial Management Systems Standardization Principles ••
These principles were jointly developed by the Departmental Office of
Procurement and the Departmental Office of Information Systems;

•

Established Cross-Servicing Arrangements -- We have worked to increase
the utilization of cross-servicing opportunities between various offices and
bureaus within Treasury (e.g., between FinCEN and the United States
Customs Service, the Office of Inspector General and Departmental
Offices, and the United States Savings Bond Division and the Bureau of
Public Debt) for administrative accounting services using off-the-shelf
software;

•

Provided Support for Financial Systems Conversion at the Financial
Management Service (FMS) -. the bureau has elected to pursue a
conversion to one of the two designated standard core financial systems
through a cross-servicing arrangement with its Center for Applied Financial
Management. The FMS is the seventh bureau to select FFS as its core
financial system; and

•

Selected a Standard Department-wide Travel Subsystem.

-7-

Progress Made at CFO Act designated Treasury Bureaus
We are both encouraged and challenged by the results reflected by the results of
this year's CFO Act audits. Approximately $1,215 billion, or 80 percent, of the
Department's total collections and expenditures were audited. These audits represent
100 percent of the accounts required to be audited by the CFO Act. This year's audit
results, as shown below, reflect improvement in that seven of the eleven entities received
unqualified audit opinions, one received a qualified opinion, and three received
disclaimers of opinion. Comparatively, for fiscal year 1992, only four entities received
unqualified opinions, two received qualified opinions, and four received disclaimers.
Summary of CFO Act Audit Results
Fiscal Year Audited
Type of Audit Opinion

1991

1992

Unqualified
Qualified
Adverse
Disclaimer

5
0
1
0

4
2
0
_4_

Total

-.N..

1993

7
1
0
3

---1l..

There are other significant highlights for the year that should be emphasized. The
newly created Treasury Asset Forfeiture Fund received its initial audit for fiscal year
1993, and obtained an unqualified opinion. The Bureau of Engraving and Printing again
voluntarily accelerated its financial statement preparation and audit processes. The
Bureau completed its audited financial statements in December, 1993, and its entire
CFO report by January 30, 1994. This accomplishment was lauded by OMB as a model
for other Federal entities.
I want you to know that Treasury is very aware of the three disclaimers it
received. The Internal Revenue Service and U.S. Customs Service again received
disclaimers of opinion on their financial statements. Nonetheless, the General
Accounting Office noted significant efforts and progress by both bureaus toward
resolving their long standing financial management problems by installing new core
financial management systems and addressing a host of other concerns identified during
GAO's fiscal year 1992 audits. In fact, from all of the CFO Act related GAO audit
reports for fiscal year 1992 on Customs and IRS, significant activity can be measured by
the number of actions taken. Customs has a total of 60 GAO recommendations of which
35, or 58 percent, have been either completed or action is in progress. IRS has a total of
44 GAO recommendations of which 22, or 50 percent, have been either completed or
action is in progress. And, finally, the U.S. Mint, while receiving a disclaimer on its

-8fiscal year 1993 operating statements, received an unqualified opinion on its statement of
financial position.
Actions to ensure these disclaimers do not continue have been taken by the
Secretary of the Treasury on down. Concerned with the disclaimers that were received
for fiscal year 1992, the Secretary submitted to the President and Congress the
Department's fiscal year 1993 Federal Managers' Financial Integrity Act Report with a
commitment for cleaning up the problems and a plan of corrective actions to ensure that
adequate internal controls are in place over their financial management systems not later
than three years from now. Further, the Secretary met in early 1994 with the Bureau
Heads and CFOs of IRS, Customs and the U.S. Mint to personally deliver this message
and obtain the same commitment from each bureau.
While Treasury is pleased with the progress being made, we realize that pelVasive
problems remain to be corrected, particularly in our revenue collection activities. Plans
have been developed and are being implemented to remedy these problems; one of the
Department's highest financial management priorities is to produce timely, useful
financial statements which receive unqualified audit opinions. I am working with our
bureau CFOs to achieve this objective as soon as possible.
Problems encountered with Implementing the Act
Overall, we have not experienced any major problems implementing the CFO Act.
Some of the obstacles we have been working to overcome are listed below:
•

Antiquated financial management systems;

•

Lack of experience in preparing CFO type financial statements;

•

Development of meaningful performance measures; and

•

Lack of appreciation for financial and programmatic performance data on the
part of program managers.

We believe we are making progress in overcoming all of these obstacles.
Treasury's Plan for the Future
We realize we have our work cut out for us. The importance of sound financial
management practices and useful financial information have long been neglected
throughout the Federal Government, and the resulting problems we face today will not
be corrected overnight. However, I am confident that we are making, and will continue
to make, significant progress. The CFO Act is yielding many positive results, not the
least of which is simply the identification of problems that need fixing. Many of our
ongoing initiatives to improve financial management across the Department have been
previously discussed. The additional initiatives described below will help us go a long
way towards realizing the goals of the CFO Act.

-9-

•

Established a Departmental CFO Council -- We created a Departmental CFO
Council, effective July 1, 1994. I am the chairperson of this Council, which is
composed of our bureaus' CFOs. This Council ensures that the Department's
financial management goals and expectations are clearly communicated
throughout the Department, and provides an additional forum for the discussion
of current financial management topics and problem resolution.

•

Developed Department-wide Financial Management Priorities -- Working through
our Departmental CFO Council described above, we will be striving to accomplish
these priorities over the next few years. These priorities include the upgrading of
our financial systems so they can produce timely, useful, auditable information
throughout the Department.

•

Expand Financial Statement Audit Coverage -- In order to provide expanded
audit coverage of all our activities, we are currently planning to have financial
statement audits of the Bureau of Alcohol, Tobacco and Firearms and the Bureau
of the Public Debt, and to then have the remaining Treasury entities participate in
this endeavor. Our goal is to prepare Department·wide financial statements for
fiscal year 1996.

•

Work for Positive Change Through the CFO Council -- I am serving as the
Executive Vice·chair of the Government-wide CFO Council. In this capacity, I
will ensure that the Department's financial management goals and practices will
also satisfy the financial information needs of all interested parties; and

•

Emphasize Training Needs -- As described above, we need to continue our efforts
toward the development of standard, comprehensive financial management
training.

Recommendations to the Subcommittee
Mr. Chairman, this Subcommittee can be of tremendous assistance to the Department,
and to all other agencies, in helping us achieve the goals of the CFO Act. In addition to
your demonstrated strong interest in the CFO Act itself, I would like to enlist your
support in the following key areas:
•

Maintain Broad CFO Organizational Structures -- Besides the traditional CFO
type functions, I have many other responsibilities as Treasury's Assistant Secretary
(Management)/CFO - budget formulation, personnel, procurement, and

- 10 -

information resources management, to name a few. The day-to-day
responsibilities in these areas are handled .b~ .my capable Deputies ..
While it might appear that having responsibilIty over all these functIOnal areas
might dilute the time I have for strictly CFO matters, in reality it provides me with
important leverage in improving the Department's financial management. I am able to
exercise control over formulating financial management budget requests, attracting and
retaining qualified financial managers, obtaining the necessary contractual support for
accounting and auditing services, and developing appropriate financial management
systems.
In a mature financial management environment, having a narrowly focused CFO
could probably work well and allow things to continue running smoothly.
However, we are not there yet. Until we are, I think bold measures are needed.
Having CFOs with broad organizational responsibilities, recognized authority, and
clear access to the agency head is necessary to give financial management
improvement the clout it needs to move forward and provide the proper support
for managing the government's programs. This CFO set up works well at
Treasury - I am confident it will work at other agencies.
•

Emphasize the Need for Investing in Our Future -- We need to invest in our
financial management infrastructure now if we want to truly achieve the CFO
Act's goals. There needs to be a stronger message sent that we need to invest
more in training our financial managers so they can become skilled in the new
practices and technologies, and invest more in financial systems so we can fully
utilize current and future technological advancements. The pace of change in
both areas continues to increase, and we must increase our rate of change
accordingly.

•

Endorse the New Structure of the Government-wide CFO Council -- The Council
recently adopted a new structure that provides for elected officers, expanded
membership, and other important changes. I think a strong endorsement of these
changes by the Subcommittee would provide the new Council with a greater
impetus to strive for making the concrete improvements we all want to achieve.

•

Recognize the CFO Council as a Vehicle for Change -- The endorsement
requested above would be especially supportive if it recognized the key role the
~ew Council can fill as an authoritative body for conducting studies, initiating
Improvements~ and making recommendations to the Executive and Legislative
Branches. ThIs would give extra creditability to the Council as a true vehicle for
change.

Thank you, Mr. C.hairman. This concludes my prepared remarks. I would be pleased to
address any questIons you or the Members of the Subcommittee may have.
-30-

DEPARTMENT

THE

TREASURY

NEWS

~8q~_ . . . . . . . . . . . . . . .. .

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

OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960

FOR IMMEDIATE RELEASE
July 13, 1994

Contact: Rebecca Lowenthal
(202) 622-2960

TREASURY TO REVIEW NEW FEATURES FOR U.S. CURRENCY DESIGN
Treasury Secretary Lloyd Bentsen announced Wednesday the Treasury Department's
plans for modernizing U. S. currency.
A series of anti-counterfeit security features under consideration was presented to the
House Banking Committee by members of the Advanced Counterfeit Deterrence Steering
Committee, which oversees deterrence efforts. Secretary Bentsen re-convened the steering
committee last year in response to the growing threat that advanced computer-based
reprographic technologies pose to the integrity of U.S. currency.
The features authorized for testing and development include changes in the paper, ink
and design of currency notes, including an enlarged off-center portrait on each denomination;
a matching watermark; an enhanced security thread in a different location on each
denomination; expanded use of microprinting in the design and on reflective material
embedded in the paper, or planchettes; and interactive, or moire, patterns that tum into
wavy, irregular patterns when copied.
Changes in the size, basic colors, portrait subjects or historic vignettes are not under
consideration.
Since the technology available for counterfeiting is evolving, the final design will
allow Treasury to include new deterrence features and discontinue those which lose their
effectiveness as technology improves. The new security features will allow merchants and
the public to more readily identify genuine notes. Covert features, which can be identified
by machines, will enhance the banking system's ability to detect counterfeits.
The Treasury will not recall, devalue or demonetize any currency. As with past
changes, old notes will remain fully valued legal tender and will be retired only when they
are returned to the Federal Reserve. A final design is expected to be approved in 1995, with
issuance of newly-designed $100 bills about a year later. The issuance of new smaller
denominations would follow.
More than $350 billion in U.S. currency notes is in circulation, over half outside the
United States.
-30LB-944

DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.

THE HISTORY OF PAPER MONEY SINCE THE 18605
1861

The United States Treasury issued paper money for the first time in the form of non-interest
bearing Treasury Notes called Demand Notes.

1862

Demand Notes were replaced by United States Notes. Commonly called "greenbacks," they were
last issued in 1971. The Secretary of the Treasury was empowered by Congress to have notes
engraved and printed, which was done by private banknote companies.

1863

The design of U.S. currency incorporated a Treasury seal, the fine line engraving necessary for
the difficult-to-counterfeit intaglio printing, intricate geometric lathe word patterns, and distinctive
linen paper with embedded red and blue fibers.

1865

Gold certificates were issued by the Treasury against gold coin and bullion deposits and were
circulated until 1933.

1865

The Treasury established the United States Secret Service to control counterfeits, at that time
amounting to one-third of circulated currency.

1866

National Bank Notes, backed by U.S. government securities, became predominant. By this time,
75 percent of bank deposits were held by nationally-chartered banks. As State Bank Notes were
replaced, the value of currency stabilized for a time.

1877

The Department of the Treasury's Bureau of Engraving and Printing (BEP) started printing all
U. S. currency, although other steps were done outside.

1878

The Treasury was authorized to issue Silver Certificates in exchange for silver dollars. The last
issue was in the Series of 1957.

1910

BEP assumed all currency production functions, including engraving, printing, and processing.

1913

After 1893 and 1907 financial panics, the Federal Reserve Act of 1913 was passed. It created
the Federal Reserve System as the nation's central bank to regulate the flow of money and credit
for economic stability and growth. The system was authorized to issue Federal Reserve Notes,
now the only U.S. currency produced and 99 percent of all currency in circulation.

1929

Currency was reduced in size by 25 percent and standardized with uniform portraits on the faces
and emblems and monuments on the backs.

1957

Paper currency was first issued with "In God We Trust" as required by Congress in 1955. The
inscription appears on all currency Series 1963 and beyond.

1990

A security thread and microprinting were introduced, first in $50 and $100 notes, to deter
counterfeiting by advanced copiers and printers.

July 13, 1994

FEATURES UNDER CONSIDERATION

Iridescent
~1i croprinted
Planchettes
',>

Detectable

Thread

J1cnOlnination
A

Intaglio

f\4achine-

Thread
Positions by

~~:~-

"II
. <:.

,,";...

'C.

.'
.~

--...,

/'-

~ .

.':" .,J
.r.'

" ..,,___ .,_J';'

~/.->('. '.'. :,;':"

,,"

(

~ '<

~.;~~

_/J

,""
......

~"i

,:"

Off-Center

Portrait

...

:'If

Larger,

Fibers

','

Generating
Line Structures

M icroprinting

Moire-

Distinct! ve and
iVlachincDetectahle

Co]or-Shifting

Ink

Localized

Portrait
Watenl1ark

Shaded portions indicate areas for nlunerals,
titles and traditional engraved borders,

Additional
MachineDetection
Features

DEFINITIONS OF FEATURES

Distinctive and Machine-Detectable Fibers. Special fibers with specific properties are
often added to security papers for forensic purposes. Modern security fibers can be
designed to incorporate many types of machine-detectable characteristics.

Iridescent Planchettes. Traditional planchettes are colored pieces of tissue paper a few
millimeters in diameter incorporated directly into the paper, either in rows or randomly
distributed. In newer planchettes, such features as microprinting and iridescence are
used to enhance their security.

Security Thread. A security thread is a thin thread or ribbon running through a
banknote substrate. It is a versatile feature, with many types currently available,
including microprinted, metallic, magnetic, windowed and imbedded. The thread
currently in use in U.S. currency is an embedded, microprinted thread which can
be seen when held to a light. This characteristic makes it impossible to copy with a
color copier, which uses reflected light to generate an image.

Watennark. A watennark is an image fonned by purposely creating localized
variations in the paper density during the papennaking process. The image is visible as
darker and lighter areas when held against a light source. Like the embedded thread, it
does not copy on color copiers.

Color-Shiftine Inks. These inks change color when viewed from different angles. For
instance, an ink that may appear gold when viewed directly may

~hange

to green when

viewed obliquely.

Moire-Generatin~

Line StnJctures. These types of line structures appear nonnal to the

human eye but cannot be properly resolved by scanning equipment. This results in the
creation of spurious images, or moire patterns, in the digital output, producing a copy
that is noticeably distinguishable from the original.

July 13, 1994

CURRENT SECURITY FEATURES
SERIAL
NUMBERS

NEW FEATURES
TO DETER COUNTERFEITING
WITH ADVANCED COPIERS,
SCANNERS, AND PRINTERS.

FEDERAL
RESERVE SEAL
I •• ulng Federel R••• rve

alnk. Code I.tter •• me ••
flr.1 I."er In Iwo .erlal
numbers.

lWo e.rlal numb... dletlnctlvely etyled and evenly epaced. Ink color eame
•• Tre.sury •• al. No two

nol_ 0' ••me •• ,,•• and
denomination have •• me

•• rlal number.

BORDER
Border'. fine line. and
lacy, webllk. d •• lgn dleIInct and unbroken.

r-G)
~

TNIS NOH IS L[GA.1.

FIBERS
SECURITY THREAD

Tiny red .nd blue flbe..
embedded In papar.

Embedded polye.ler .Irlp
with repeated USA 50 or
USA 100 In en up-anddown pattem. Visible when
held 10 light. Cannot be
r.produc.d In r.flecl.d
light of copl..... In n_ SerIes 1990 S50 and S100

(

not...

1fI)
MICROPRINTING
"The United SI81 •• of AmerIca" pnnt.d r.pealedly on
side. of portrait. Lette.. 100

Imall to read without. magnifier or for dlatlnct coplef
reproduction. In new Serl.1

PORTRAIT
Lifelike portrait distinct
from fine, screen Ilk. background.

Sawtooth points sharp, dletinct, and unbroken. Seal's

color sama .a two s.rlal

t990 $50 and $100 noteL

numbers.

ENGRAVED
PRINTING

Published 1991

TREASURY
SEAL

Engreved plale printing

PAPER

gives new notes embossed

Cotton and linen rag pap.r
has strong, pliable "leel."

'-'-feel...

No watermarks.

DENOMINATION
Note's value on corne ....
aame a. over Treasury

leal.

NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622-2960

ORAL STATEMENT OF
ROBERT P. CESCA
DEPUTY INSPECfOR GENERAL
U.S. DEPARTMENT OF THE TREASURY
BEFORE THE
SUBCOMMITIEE ON COMMERCE, CONSUMER AND MONETARY
AFFAIRS
COMMITfEE ON GOVERNMENT OPERATIONS
UNITED STATES IIOUSE OF REPRESENTATIVES
CONCERNING
PROGRESS IN IMPLEMENTING
THE CHIEF FINANCIAL OFFICERS ACf
JULY 13, 1994

LB-945

Mr. Chairman and Members of the Subcommittee, I am pleased to appear before
you today to discuss the implementation of the Chief Financial Officers (CFO) Act. The
Act is a very significant piece of legislation that is having a profound effect on financial
management throughout the Federal government and the manner in which financial
activities are being audited by the Inspectors General. Accompanying me today is Mr.
Jay Weinstein, the Assistant Inspector General for Audit.
I have abbreviated my statement somewhat, but request that it be submitted for
the record in its entirety.
The Department has fully met its obligations to produce audited financial
statements for the entities specified by the Act. Secretary Bentsen has stated his
personal commitment to assuring that the Department of the Treasury both obtains
unqualified opinions on all its financial statements as quickly as possible as well as
setting the standard for financial management excellence. The Department has a
qualified and committed Chief Financial Officer, Mr. George Munoz, and each bureau
has established its own Chief Financial Officer. These CFOs are focusing their attention
on improving the financial management throughout the Treasury Department. Further,
the Department has the distinction of having the first federal entity-- the Bureau of
Engraving and Printing-- submit FY 1993 audited financial statements to OMB on
January 31, 1994.
The impetus for improved financial management-- and greater attention to
financial auditing-- both within the Department and government wide-- has clearly been
the CFO Act. The Act required annual audited financial statements of certain entities
within the Department, some of the more significant including the Internal Revenue
Service, the U.S. Customs Service, the U.S. Mint, the Bureau of Engraving and Printing,
to name just a few. The requirement to prepare and subject the statements to audit has
significantly improved-- and in fact in some cases introduced-- financial accounting,
reporting and management practices and procedures. Whether it was the discipline
needed to prepare audited statements or the improvements identified by the audits
themselves, there is no denying that financial management has improved within the
Department. As evidenced by the audit reports on the IRS and Customs, while much
more needs to be done, progress is being made.
Clearly, the Act has also impacted the way the Office of Inspector General (OIG)
approaches financial statement audits. Having participated in the implementation of the
Act and having worked with the General Accounting Office on the most recent audits of
IRS and Customs, we have gained a better appreciation for the impact and magnitude of
these audits. We better appreciate how CFO audits can pull together in one report
information from separate audits in order to evaluate the financial management of an
agency. We are also more sensitive to the linkages between financial statements and
program performance measures.
2

I would like to take a moment and acknowledge the contributions made by the
General Accounting Office. GAO's work in the Department has resulted in identifying
many significant areas of improvement in the two largest Treasury bureaus-- the IRS and
Customs. Further, as an auditor, I appreciate the magnitude and complexity of these two
audits and I congratulate GAO for the job it did. We have benefitted by having the
opportunity to work with GAO on its most recent audits and are better positioned now
to perform the Customs audit.
In your June 15, 1994 letter inviting me to testify, you as~ed that I address the
following issues, which were of particular interest to the Comrruttee.
•

What has been the Department's progress in implementing CFO Act
requirements?

•

What problems is the Department encountering in integr~ting the ~FO ~ct
requirements with requirements based on other laws appbcable to fmanclal
management?

•

What plans and preparations are in place for migrating the IRS and
Customs CFO audits from the General Accounting Office to the Office of
Inspector General?

•

What strategy is there for committing sufficient Office of Inspector General
staff resources to the Customs and IRS CFO audits in light of other audit
priorities?

WHAT PROGRESS HAS BEEN MADE IN IMPLEMENTING THE CFO ACf?
The Department of the Treasury has made steady and effective progress in
implementing the CFO Act. The Act required that trust and revolving funds and all
commercial like activities have financial statements prepared and that they be subject to
audit. In addition, the Act specifically identified the Internal Revenue Service and the
Customs Service as pilot "agencies", for which "agency" wide financial statements be
prepared and audited. As a result, the Department initially identified nine entities
subject to the Act. Subsequently, two other entities were added, to bring the total 11.
In FY 1991, all but one audit required by the Act were accomplished. As
permitted by the CFO Act, OMB granted the Mint a first year waiver from preparing its
FY 1991 financial statements. For FY 1992, three additional Treasury bureaus'
financial statements were audited-- IRS, Customs, and the Financial Management
Service (FMS). In addition, the Mint's financial statements were audited. The
Department's Asset Forfeiture Fund was audited beginning with FY 1993.

Therefore, beginning with FY 1992 and continuing with FY 1993, the Department
has met its obligation to produce audited financial statements for the eleven entities
specified by the Act. Approximately $1.2 trillion-- or 80 percent of Treasury's total
collections and expenditures-- is subject to audit. Additionally, more than $11.5 billion-or 90 percent-- of the Department's total operating budget was audited for FY 1993.
Significant financial statement audit activity has been accomplished in the
Department. The two largest bureaus-- IRS and Customs-- have had their FY 1992 and
FY 1993 financial statements audited by GAO with assistance in FY 1993 by the Office
of Inspector General and the IRS's Office of the Chief Inspector. The other nine CFO
audits have been accomplished by CPA firms contracted for either by the OIG or the
audited entity, but in all cases with oversight provided for by the OIG.
In addition to what has already been accomplished, the Department has set a goal
of preparing Department-wide financial statements for fiscal year 1996. In order to
accomplish this goal, we are working with the Department to have audited FY 1995
financial statements for the Bureau of the Public Debt and the Bureau of Alcohol,
Tobacco and Firearms.
As a result of the financial statement audits, the need for significant improvement

in some of the largest Treasury financial operations have been identified. GAO was
unable to express opinions on the reliability of either IRS' or Customs' financial
statements due to the lack of reliable supporting information. In addition, GAO
observed that internal controls were not properly designed and implemented: to
effectively safeguard assets; to provide a reasonable basis for determining material
compliance with laws and regulations; or to assure there were no material misstatements
in the Principle Financial Statements. However, as a result of its FY 1993 audits, GAO
reported that both IRS and Customs took important steps to address the problems GAO
had identified. Similarly, our FY 1992 audit of the Mint identified problems with the
Mint's financial operations that resulted in a disclaimer of opinion due to material
weaknesses identified in the Mint's internal control structure, specifically, its fund
structure, financial system, and financial statement preparation processes. The most
recent audit of the Mint, however, showed that substantial progress was being made to
address and correct these matters.
Treasury is making progress toward achieving Secretary Bentsen's goal of meeting
the requirements of the Act and achieving unqualified opinions. Implementing the
necessary improvements won't be easy; however, the commitment to improve is apparent.

WHAT PROBLEMS HAVE BEEN ENCOUNTERED INTEGRATING CFO ACf
REQUIREMENTS WITH OTHER FINANCIAL MANAGEMENT
REQUIREMENTS?
The Department is working to integrate the various financial management
requirements of the Federal Managers' Financial Integrity Act (FMFIA) of 1982, the
Government Performance and Results Act (GPRA) of 1993, OMB Circular A-127
"Financial Management Systems", and other related financial management requirements
into a cohesive program.
The Department has routinely considered the results of the financial statement
audits conducted as part of the CFO Act when evaluating its internal controls and
financial management systems, as required by FMFIA. However, a real problem exists
with the timing of the CFO and FMFIA reports. For FY 1993, FMFIA reports were
issued by December 31, 1993, whereas the CFO audit reports were issued by June 30,
1994. The difference in the reporting dates causes a lack of true integration between the
two programs-- the results of a CFO audit will not be reported out in time for
consideration in that year's FMFIA report and would likely have to be considered in the
subsequent year's FMFIA report.
The financial management community, OMB and the OIGs are looking for ways
to better integrate the reporting requirements of the CFO and FMFIA. We have
discussed this issue with the CFO and we intend to jointly approach OMB asking that
the Department be identified as a prototype for exploring opportunities to better
integrate the CFO and FMFIA programs.
Another program that is closely linked to the CFO Act is the Government
Performance and Results Act, commonly referred to as GPRA. GPRA requires agencies
to develop meaningful performance measures, which will provide a basis for comparing
actual program results with established performance goals. However, in order to develop
useful performance measures as envisioned by GPRA, accurate and reliable financial
information is essential. This is because many of the measures that will be developed
will likely have as input information generated from financial statements or systems.
Thus, the successful implementation of GPRA is dependent upon the reliability of the
financial systems generating this information. The Department is taking an active role in
implementing the provisions of GPRA through improved financial operations and having
a number of programs act as pilots under OMB's GPRA prototype program.

The Department is also actively pursuing greater financial systems integration, in
recognition of the fundamental role that properly designed and well integrated systems
have to effective financial management. In FY 1992, the Department established the
Financial Management Systems Advisory Committee (FMSAC) to develop
recommendations for standardizing financial management subsystems Department-wide.

In response to a request by both the Department and OMB, we have recently
started an evaluation to assess the adequacy of the Department's financial systems
integration efforts and whether its status as an OMB designated high risk area should be
changed.

The true measure of the Department's success in implementing the CFO and all
the other financial related Acts and programs will occur when financial information is
used as a matter of course by program managers to manage their programs and influence
their decision making. This has not yet happened, primarily because the information is
not viewed as being reliable or timely. As the Department achieves the needed financial
management improvements, we would expect to see greater evidence of integrating
financial information into the management of Treasury programs.
WHAT IS BEING DONE TO MIGRATE THE
CUSTOMS AND IRS AUDITS FROM GAO TO THE OIG?
ll

The CFOs Act included IRS and Customs as IIpilots for CFO financial statement
generation and audit. GAO exercised its prerogative, and conducted the FY 1992 and
FY 1993 audits of the statements prepared by both IRS and Customs. GAO performed
the audits for FY 1992. For the FY 1993 audits, our Office of Audit assigned 37 staff to
assist GAO. In addition, the IRS's Office of the Chief Inspector provided approximately
the same level of support. For the FY 1994 statements, the OIG will perform the audit
of Customs and GAO will, in conjunction with IRS's Office of the Chief Inspector,
perform the audit of IRS.
GAO has laid the groundwork and established the framework for the audit of the
Customs Service. GAO developed the audit methodologies and identified the issues
during its prior two audits that we will carry forward in our FY 1994 and future year
audits. Further, we have clearly benefitted by having the opportunity to work side by
side with experienced GAO auditors during their FY 1993 audits. We have identified
areas where we need to improve in order to best perform the work required under the
Act. For example, we are planning to contract for ADP and statistical sampling
expertise until we can fully develop these essential skills in house. Further, we expect to
assign a senior level official who will have a singular focus on the Customs CFO audit.
For the FY 1994 Customs audit, we have redeployed auditors already on board,
supplemented by new hires. The audit carries a personnel complement of approximately
40, with most lead positions being filled by in-house Certified Public Accountants who
had worked with GAO on the FY 1993 audit. We will continue to consult with GAO
throughout the course of the FY 1994 audit of Customs to ensure that the audit
approaches at both Customs and IRS are appropriately consistent.

WHAT IS THE OIG'S STRATEGY FOR COMMITTING SUFFICIENT
RESOURCES TO THE CFO AUDITS IN LIGHT OF OTHER PRIORI1Y AUDITS1
The OIG is committed to successfully performing its CFO related responsibilities.
We are estimating that it will take us nearly 40 full time equivalents to perform the FY
1994 CFO audit at Customs and plan to perform the audit in-house, contracting out for
only the audit of systems controls and needed statistical sampling expertise. We plan to
continue to employ contractors for accomplishing the other CFOs Act-mandated audits.
Because we will not be performing the FY 1994 CFO audit for IRS, we expect to expend
only a limited amount of resources to liaison with GAO and maintain some level of
familiarity with the IRS audit. This will expedite the transition of audit responsibility to
the OIG when GAO decides to stop performing the audit.
Our FY 1995 CFO budget initiative asks for 21 additional Full-Time-Equivalents,
to replace those who were redirected from other audits to work on the Customs CFa
audit. While we view CFO Act as extremely important, the reality is that Treasury is a
multi-faceted agency, with many other non-financial programs that are significant,
needing programmatic review. Quite frankly, without the requested additional personnel,
the ~iG's overall effectiveness to evaluate the non-financial programs of the Department
and meet its other mandates will likely be diminished.
In summary, Mr. Chairman, I believe that the Department of the Treasury has
made significant progress in effectively implementing the CFO Act. However, more
remains to be done. I also want to emphasize that I support the CFO Act and have a
sincere commitment to effectively discharge the responsibilities assigned this Office by
the Act.
I hope I have addressed the issues that are of concern to the Committee and will
be pleased to answer any questions you and other members of the Committee may have.

-30-

DEPARTMENT

THE

TREASURY

lREASURY r.>····~.l
'\.11"
~~,t ' 1
~ E W

_______
• .::z178i:::.'l. . ._ _ _ _ _ __

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

STATEMENT OF
ROBERT P. CESCA
DEPUTY INSPECTOR GENERAL
U.S. DEPARTMENT OF THE TREASURY
BEFORE THE
SUBCOMMITTEE ON COMMERCE, CONSUMER AND MONETARY
AFFAIRS
COMMITTEE ON GOVERNMENT OPERATIONS
UNITED STATES HOUSE OF REPRESENTATIVES
CONCERNING
PROGRESS IN IMPLEMENTING
THE CHIEF FINANCIAL OFFICERS ACT
JULY 13, 1994

LB-946

Mr. Chairman and Members of the Subcommittee, I am pleased to appear before
you today to discuss the implementation of the Chief Financial Officers (CFO) Act. The
Act is a very significant piece of legislation that is having a profound effect on financial
management throughout the Federal government and the manner in which financial
activities are being audited by the Inspectors General. Accompanying me today is Mr.
Jay Weinstein, the Assistant Inspector General for Audit.
The Department has fully met its obligations to produce audited financial
statements for the entities specified by the Act. Secretary Bentsen has stated his
personal commitment to assuring that the Department of the Treasury both obtains
unqualified opinions on all its financial statements as quickly as possible as well as
setting the standard for financial management excellence. To this end, the Department
and its bureaus are working hard to effect the improvements identified through the
audits of the statements and the corresponding control systems. The Department has a
qualified and committed Chief Financial Officer, Mr. George Munoz, and each bureau
has established its own Chief Financial Officer. These CPOs are focusing their attention
on improving the financial management throughout the Treasury Department. Further,
the Department has the distinction of having the first federal entity-- the Bureau of
Engraving and Printing-- submit FY 1993 audited financial statements to OMB on
January 31, 1994.
The impetus for improved financial management-- and greater attention to
financial auditing-- both within the Department and government wide-- has clearly been
the CFO Act. The Act required annual audited financial statements of certain entities
within the Department, some of the more significant including the Internal Revenue
Service, the U.S. Customs Service, the U.S. Mint, the Bureau of Engraving and Printing,
to name just a few. The requirement to prepare and subject the statements to audit has
significantly improved-- and in fact in some cases introduced-- financial accounting,
reporting and management practices and procedures. Whether it was the discipline
needed to prepare audited statements or the improvements identified by the audits
themselves, there is no denying that financial management has improved within the
Department. As evidenced by the audit reports on the IRS and Customs, while much
more needs to be done, progress is being made.
The CPO Act has also focused greater attention on ensuring that the
Department's financial systems are better integrated. Problems with financial systems
integration have been identified by the Department as part of its Federal Managers
Financial Integrity Act reports since December 1989, which predates the CFO Act.
While progress was being made since first reporting this problem, the CFO Act has more
sharply focused on the need for better integrated systems, and the momentum for
achieving this correspondingly has increased over the past year.

Clearly, the Act has also impacted the way the Office of Inspector General (OIG)
approaches financial statement audits. Having participated in the implementation of the
Act and having worked with the General Accounting Office on the most recent audits of
IRS and Customs, we have gained a better appreciation for the impact and magnitude of
these audits. We recognize that there needs to be a balance between the financial
statement audits and the program audits we have emphasized in the past. We better
appreciate how CFO audits can pull together in one report information from separate
audits in order to evaluate the financial management of an agency. We are also more
sensitive to the linkages between financial statements and program performance
measures.
The CFO Act offers our Department far more than the opportunity to achieve
audited financial statements with unqualified opinions. Our office is working with
Treasury officials to ensure that the information we provide in these audits is useful to
management decision-makers. By effectively linking audited financial statements to
effective management, I am confident that we can improve Federal financial
management. I also know that the OIG can proactively assist management in improving
its financial systems and, at the same time, perform the audits required by the Act.
I would like to take a moment and acknowledge the contributions made by the
General Accounting Office. GAO's work in the Department has resulted in identifying
and
many significant areas of improvement in the two largest Treasury bureaus-- the
Customs. Further, as an auditor, I appreciate the magnitude and complexity of these two
audits and I congratulate GAO for the job it did. We have benefitted by having the
opportunity to work with GAO on its most recent audits and are better positioned now
to perform the Customs audit.

In your June 15, 1994 letter inviting me to testify, you asked that I address the
following areas of inquiry:

•

•
•

What has been the Department's progress in implementing CFO Act
requirements?
What problems is the Department encountering in integrating the CFO Act
requirements with requirements based on other laws applicable to financial
management?
What plans and preparations are in place for migrating the IRS and
Customs CFO audits from the General Accounting Office to the Office of
Inspector General?
What strategy is there for committing sufficient Office of Inspector General
staff resources to the Customs and IRS CFO audits in light of other audit
priorities?
2

WHAT PROGRESS HAS BEEN MADE IN IMPLEMENTING THE CFO ACT?
The Department of the Treasury has made steady and effective progress in
implementing the CFO Act. The Act required that trust and revolving funds and all
commercial like activities have financial statements prepared and that they be subject to
audit. In addition, the Act specifically identified the Internal Revenue Service and the
Customs Service as pilot "agencies", for which "agency" wide financial statements be
prepared and audited.
As a result, the Department initially identified nine entities subject to the Act.
They were as follows:
Beginning with FY 1991 statements
Bureau of Engraving and Printing
The Department's Gifts and Bequest Fund
Office of the Comptroller of the Currency
Office of Thrift Supervision
U.S. Mint
Ester Cattell Schmidt Trust Fund
The Working Capital Fund
Beginning with FY 1992 statements
Internal Revenue Service
U.S. Customs Service
Subsequently, the Financial Management Service was added for the year ending
September 30, 1992, and the Department's Asset Forfeiture Fund-- which began
operations in FY 1993-- was added for the year ending September 30, 1993.
In FY 1991,.all but one audit required by the Act were accomplished. As
permitted by the CFO Act, OMB granted the Mint a first year waiver from preparing its
FY 1991 financial statements. The Mint requested a waiver because it desired to
implement ongoing accounting improvements designed to produce auditable financial
statements. For FY 1992, three additional Treasury bureaus' financial statements were
audited-- IRS, Customs, and the Financial Management Service (FMS). In addition, the
Mint's financial statements were audited. The Department's Asset Forfeiture Fund was
audited beginning with FY 1993.
Therefore, beginning with FY 1992 and continuing with FY 1993, the Department
has met its obligation to produce audited financial statements for the entities specified by
the Act. Approximately $1.2 trillion-- or 80 percent of Treasury's total collections and
expenditures-- is subject to audit. Additionally, more than $11.5 billion-- or 90 percent-of the Department's total operating budget was audited for FY 1993.
3

Significant financial statement audit activity has been accomplished in the
Department. The two largest bureaus-- IRS and .Custo~-- ha~e had their FY 1992 and
FY 1993 financial statements audited by GAO Wlth assIstance m FY 1993 by the Office
of Inspector General and the IRS's Office of the Chief Inspector. The other nine CFO
audits have been accomplished by CPA firms contracted for either by the OIG or the
audited entity, but in all cases with oversight provided for by the OIG.
In addition to what has already been accomplished, the Department has set a goal
of preparing Department-wide financial statements for fiscal year 1996. In order to
accomplish this goal, we are working with the Department to have audited FY 1995
financial statements for the Bureau of the Public Debt and the Bureau of Alcohol,
Tobacco and Firearms.
As a result of the financial statement audits, the need for significant improvement

in some of the largest Treasury financial operations have been identified. The CFO
audits performed by GAO for FY s 1992 and 1993 of the IRS and Customs are perhaps
the best illustrations of both the problems identified and the progress being made to
address them. In summary, GAO was unable to express opinions on the reliability of
either IRS' or Customs' financial statements due to the lack of reliable supporting
information. In addition, GAO observed that internal controls were not properly
designed and implemented: to effectively safeguard assets; to provide a reasonable basis
for determining material compliance with laws and regulations; or to assure there were
no material misstatements in the Principle Financial Statements. However, as a result of
its FY 1993 audits, GAO reported that both IRS and Customs took important steps to
address the problems GAO had identified. Similarly, our FY 1992 audit of the Mint
identified problems with the Mint's financial operations that resulted in a disclaimer of
opinion due to material weaknesses identified in the Mint's internal control structure,
specifically, its fund structure, financial system, and financial statement preparation
processes. The most recent audit of the Mint, however, showed that substantial progress
was being made to address and correct these matters.
Treasury is making progress toward achieving Secretary Bentsen's goal of meeting
the requirements of the Act and achieving unqualified opinions. Implementing the
necessary improvements won't be easy; however, the commitment to improve is apparent.

WHAT PROBLEMS HAVE BEEN ENCOUNTERED INTEGRATING CFO ACf
REQUIREMENTS WITH OTHER FINANCIAL MANAGEMENT
REQUIREMENTS?
The CFO Act has at its core assuring that accurate and reliable financial
information regarding government operations and financial condition is available to
Congress, Federal managers and the pUblic.
4

The CFO Act has far reaching implications that are related to other financial
management laws and or requirements. The Department is working to integrate the
various financial management requirements of the Federal Managers' Financial Integrity
Act (FMFIA) of 1982, the Government Performance and Results Act (GPRA) of 1993,
OMB Circular A-127 "Financial Management Systems!!, and other related financial
management requirements into a cohesive program.
The Department has routinely considered the results of the financial statement
audits conducted as part of the CFO Act when evaluating its internal controls and
financial management systems, as required by FMFIA. For example, neither Customs
nor IRS could report reasonable assurance that their financial systems met the objectives
of Section 4 of FMFIA, and this was reported as part of the FY 1993 FMFIA report.
However, a real problem exists with the timing of the CFO and FMFIA reports. For FY
1993, FMFIA reports were issued by December 31, 1993, whereas the CFO audit reports
were issued by June 30, 1994. The difference in the reporting dates causes a lack of true
integration between the two programs-- the results of a CFO audit will not be reported
out in time for consideration in that year's FMFIA report and would likely have to be
considered in the subsequent year's FMFIA report. Further, the results of the CFO
audit, performed by independent auditors, may identify issues not previously identified
through the self-assessments required by the FMFIA This could call into question the
accuracy and reliability of the FMFIA process. This has, in fact, occurred within the
Department, where both the GAO and OIG have identified through CFO work items
not previously reported through the FMFIA.
The financial management community, OMB and the OIGs are looking for ways
to better integrate the reporting requirements of the CFO and FMFIA We have
discussed this issue with the CFO and we intend to jointly approach OMB asking that
the Department be identified as a prototype for exploring opportunities to better
integrate the CFO and FMFIA programs.
Another program that is closely linked to the CFO Act is the Government
Performance and Results Act, commonly referred to as GPRA. GPRA requires agencies
to develop meaningful performance measures, which will provide a basis for comparing
actual program results with established performance goals. However, in order to develop
useful performance measures as envisioned by GPRA, accurate and reliable financial
information is essential. This is because many of the measures that will be developed
will likely have as input information generated from financial statements or systems.
Thus, the successful implementation of GPRA is dependent upon the reliability of the
financial systems generating this information-- a vital aspect of the CFO Act. The
Department is taking an active role in implementing the provisions of GPRA through
improved financial operations and having a number of programs act as pilots under
OMB's GPRA prototype program.

The Department is also actively pursuing greater financial systems integration, in
recognition of the fundamental role that properly designed and well integrat~d systems
have to effective financial management. In FY 1992, the Department established the
Financial Management Systems Advisory Committee (FMSAC) to develop
recommendations for standardizing financial management subsystems Department-wide.
FMSAC has been responsible for a number of actions that have moved the Department
toward an integrated financial management system. These include working with the
bureaus to implement off-the-shelf core financial systems and establishing FMSAC
project teams to develop integrated sub-systems. In response to a request by both the
Department and OMB, we have recently started an evaluation to assess the adequacy of
the Department's financial systems integration efforts and whether its status as an OMB
designated high risk area should be changed.
The true measure of the Department's success in implementing the CFO and all
the other financial related Acts and programs will occur when financial information is
used as a matter of course by program managers to manage their programs and influence
their decision making. This has not yet happened, primarily because the information is
not viewed as being reliable or timely. As the Department achieves the financial
management improvements necessitated by CFO, FMFIA, GPRA, and OMB Circular A127, we would expect to see greater evidence of integrating financial information into the
management of Treasury programs.
WHAT IS BEING DONE TO MIGRATE THE
CUSTOMS AND IRS AUDITS FROM GAO TO TIlE OIG?
The CFOs Act included IRS and Customs as "pilots" for CFO financial statement
generation and audit. OMB Bulletin 93-18 extended the pilot program beyond FY 1992.
The CFO Act assigned the responsibility to perform the audits at both IRS and Customs
to the OIG. GAO exercised its prerogative, and conducted the FY 1992 and FY 1993
audits of the statements prepared by both IRS and Customs. GAO performed the
audits for FY 1992. For the FY 1993 audits, our Office of Audit assigned 37 staff to
assist GAO. In addition, the IRS's Office of the Chief Inspector provided approximately
the same level of support. For the FY 1994 statements, the OIG will perform the audit
of Customs and GAO will, in conjunction with IRS's Office of the Chief Inspector,
perform the audit of IRS.
GAO has laid the groundwork and established the framework for the audit of the
Customs Service. GAO developed the audit methodologies and identified the issues
duri.ng its prior two audits that we will carry forward in our FY 1994 and future year
a,udlts.. Furthe~, we have clearly benefitted by having the opportunity to work side by
SIde Wlth expenenced GAO auditors during their FY 1993 audits. We have identified
areas where we need to improve in order to best perform the work required under the
Act.
6

For example, we are planning to contract for ADP and statistical sampling
expertise until we can fully develop these essential skills in house. Further, we expect to
assign a senior level official who will have a singular focus on the Customs CFO audit.
In the past, the audit was assigned to a Regional Inspector General for Audit, who in
addition to the Customs CFO audit, had other audit responsibilities.
For the FY 1994 Customs audit, we have redeployed auditors already on board,
supplemented by new hires. The audit carries a personnel complement of approximately
40, with most lead positions being filled by in-house Certified Public Accountants who
had worked with GAO on the FY 1993 audit.
Admittedly, GAO's decision to continue the CFO audit of IRS has had a positive
effect on the OIG by permitting us to direct our attention to the successful completion of
the Customs CFO audit, without the added responsibility of the IRS audit. At that point
in time when GAO decides not to perform the audit of IRS, the OIG will work with
GAO to assure an orderly and effective transition of the IRS audit to the OIG.
We will continue to consult with GAO throughout the course of the FY 1994
audit of Customs to ensure that the audit approaches at both Customs and IRS are
appropriately consistent. GAO has agreed to review our plans and other pertinent
documentation and provide us their comments and suggestions. Finally, although we do
not expect the Customs audit to be easy and without its challenges, we are confident in
our ability to perform it successfully.
WHAT IS THE ~IG'S STRATEGY FOR COMMITTING SUFFICIENT
RESOURCES TO THE CFO AUDITS IN LIGHT OF OTHER PRIORITY AUDITS?
The OIG is committed to successfully performing its CFO related responsibilities.
We are estimating that it will take us nearly 40 full time equivalents to perform the FY
1994 CFO audit at Customs and plan to perform the audit in-house, contracting out for
only the audit of systems controls and needed statistical sampling expertise. We plan to
continue to employ contractors for accomplishing the audits of the Office of the
Comptroller of the Currency, the Office of Thrift Supervision, FMS, the Mint, the
Bureau of Engraving and Printing, and other CFOs Act-mandated audits. Because we
will not be performing the FY 1994 CFO audit for IRS, we expect to expend only a
limited amount of resources to liaison with GAO and maintain some level of familiarity
with the IRS audit. This will expedite the transition of audit responsibility to the OIG
when GAO decides to stop performing the audit.
Our FY 1995 CFO budget initiative asks for 21 additional Full-Time-Equivalents,
to replace those who were redirected from other audits to work on the Customs CFO
audit. While we view CFO Act as extremely important, the reality is that Treasury is a
multi-faceted agency, with many other non-financial programs that are significant,
needing programmatic review.

For example, security over Treasury operations, including those at the Mint and
Bureau of Engraving and Printing, as well as sensitive law enforcement programs need to
be evaluated. The Department has significant responsibility for the safety and soundness
of the banking and thrift industries; accordingly, the effectiveness of the Office of the
Comptroller of the Currency's and the Office of Thrift Supervison's financial institution
supervisory programs needs to be assessed. Customs programs for trade facilitation, and
import and export controls are vital and need periodic review. The Bureau of Alcohol,
Tobacco and Firearms is responsible for controlling the flow of weapons and explosives;
these programs central to the public safety would not be evaluated as part of the CFO
Act and, therefore, need periodic review. Quite frankly, without the requested
additional personnel, the DIG's overall effectiveness to evaluate the non-financial
programs of the Department and meet its other mandates will likely be diminished.
In summary, Mr. Chairman, I believe that the Department of the Treasury has
made significant progress in effectively implementing the CFO Act. However, more
remains to be done. I also want to emphasize that I support the CFO Act and have a
sincere commitment to effectively discharge the responsibilities assigned this Office by
the Act.
I hope I have addressed the issues that are of concern to the Committee and will
be pleased to answer any questions you and other members of the Committee may
have.

-30-

NEWS

OmCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960

FOR IMMEDIATE RELEASE
July 13, 1994
STATEMENT BY TREASURY SECRETARY LLOYD BENTSEN

Today we are announcing the Treasury Department's plans to change the design of
U.S. currency to enhance its security in this time of rapid technological change.
Last year I charged the Advanced Counterfeit Deterrence Steering
oversees our deterrence efforts, with the task of assessing and developing
secure currency. The group, chaired by Treasury Under Secretary Frank
responded quickly to its mandate, and will discuss the program in greater
hearing before the House Banking Committee.

Committee, which
features for a more
Newman, has
detail at today's

Our plan, developed in cooperation with the Federal Reserve, is a pre-emptive step to
protect U.S. currency from high-tech counterfeiting. This initiative was not undertaken as a
result of a crisis or because of any meaningful threat from any particular source. The actual
volume of counterfeiting of U.S. currency has been only a very small fraction of the total in
circulation. The Secret Service has an outstanding record of enforcement. Two security
features introduced in 1991 -- a polyester security thread embedded in the paper and
microprinted wording -- have been very effective. But we would risk eventual diminishment
of confidence in the integrity of our currency if we did not change it to meet the challenges
of a new generation of technology. With diligence, we can ensure the continued security of
our currency.
It is vitally important that people around the world understand that all existing U.S.
currency will continue to be valid. The re-designed currency will be introduced over a
period of years, and no U.S. currency will be demonetized, devalued or recalled.
The testimony today will shed light on the features to be tested and developed in the
coming months, and on the process we will follow to put new bills into circulation. The
steering committee has examined the emerging technologies accessible to counterfeiters and
existing technologies that could be used to make a more secure, more easily verified bill. Its
ultimate design will be sufficiently elastic to allow for revisions as new technologies emerge,
but will maintain the traditional look of U.S. currency.
(MORE)

LB-947

-2-

No single feature alone is sufficient and no single currency design can be absolutely
counterfeit-proof over time. But with a willingness to re-examine and update our designs,
we can stay ahead of the technology curve.
Chairman Gonzalez and other members of the House Banking Committee on both
sides of the aisle share our interest in this effort and have encouraged the development of
enhanced security features. I would like to thank Chairman Greenspan, Governor Kelley and
the Federal Reserve for their work on the Steering Committee. We are happy to take this
opportunity to update the Banking Committee on our progress and to announce this important
plan.
-30-

lREASURY

NEWS

OFFICE OF PUBliC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

FOR IMMEDIATE
July 13, 1994

RELEASE

Contact: Rebecca LOwenffiat
(202) 622-2960

TREASURY TO REVIEW NEW FEATURES FOR U.S. CURRENCY DESIGN
Treasury Secretary Lloyd Bentsen announced Wednesday the Treasury Department's
plans for modernizing U. S. currency.
A series of anti-counterfeit security features under consideration was presented to the
House Banking Committee by members of the Advanced Counterfeit Deterrence Steering
Committee, which oversees deterrence efforts. Secretary Bentsen re-convened the steering
committee last year in response to the growing threat that advanced computer-based
repro graphic technologies pose to the integrity of U. S. currency.
The features authorized for testing and development include changes in the paper, ink
and design of currency notes, including an enlarged off-center portrait on each denomination;
a matching watermark; an enhanced security thread in a different location on each
denomination; expanded use of microprinting in the design and on reflective material
embedded in the paper, or planchettes; and interactive, or moire, patterns that turn into
wavy, irregular patterns when copied.
Changes in the size, basic colors, portrait subjects or historic vignettes are not under
consideration.
Since the technology available for counterfeiting is evolving, the final design will
allow Treasury to include new deterrence features and discontinue those which lose their
effectiveness as technology improves. The new security features will allow merchants and
the public to more readily identify genuine notes. Covert features, which can be identified
by machines, will enhance the banking system's ability to detect counterfeits.
The Treasury will not recall, devalue or demonetize any currency. As with past
changes, old notes will remain fully valued legal tender and will be retired only when they
are returned to the Federal Reserve. A final design is expected to be approved in 1995, with
issuance of newly-designed $100 bills about a year later. The issuance of new smaller
denominations would follow.
More than $350 billion in U.S. currency notes is in circulation, over half outside the
United States.
-30LB-944

NEWS
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

FOR RELEASE UPON DELIVERY
EXPECTED AT 10:00 A.M.
JULY 13, 1994

STATEMENT OF FRANK N. NEWMAN
UNDER SECRETARY OF THE TREASURY
DOMESTIC FINANCE
BEFORE THE CO:MMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
U.S. HOUSE OF REPRESENTATIVES
JULY 13, 1994

for Release upon Delivery
Expected at 10:00 a. m.
July 13, 199.+

ST ATEMENT OF FRANK N. NEWMAN
UNDER SECRETARY OF THE TREASURY
DOMESTIC FINANCE
BEFORE THE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
U.S. HOUSE OF REPRESENTATIVES

Good Morning Mr. Chairman and members of the Committee.
I am pleased to be here today to discuss the Treasury's plan for promoting the security of
U.S. currency into the future. With me from Treasury are Mary Ellen Withrow, Treasurer of the
United States, Peter H. Daly, Director of the Bureau of Engraving and Printing, and Guy Caputo,
Deputy Director of the U. S. Secret Service, in addition to Governor Edward Kelley of the FeDer~
Reserve. At Secretary Bentsen's direction, I serve as chairman of the interagency Advanced
Counterfeit Deterrence Steering Committee, composed of the Treasury bureaus and agencies
represented here today and the Federal Reserve System. The committee has been operating since
1982 to assure effective cooperation among the parts of the government responsible for stewardshr
of our currency system. Last year, Secretary Bentsen charged our committee with prompt analYlil
of trends and alternatives for responsible action by the Treasury Department.
This morning, Secretary Bentsen announced that the Treasury Department is undertakinga
comprehensive program to modernize the design of U. S. currency. We are here today to outline It:
rationale, objectives, and approach to that program, and to respond to your questions about it.
First, Mr. Chairman, I would like to express our appreciation for your leadership on thll
issue in recent years. Your support has been most valuable as we have developed programs to
protect our currency from future counterfeiting threats.
As you know, the dollar is a de-facto world currency. About 2/3 of the $350 billion of L
dollars in general circulation is being used outside of the United States. This reaps economic
benefits to the United States because the interest-free currency notes issued by the Federal Resef\:
support a corresponding level of interest-eaming assets. Most of the Federal Reserve's annual
interest income is then paid to the Treasury. As Governor Kelley will explain in more detail, th:!
value has been running in excess of S 15 billion a year for the U. S. Treasury.
Because of its enduring \'alue and world-wide acceptability, the dollar will always be a tt.:;:
Df (ountcrfeiter~. At thi~ lImc, howcvcr, counterfeiting does not pose a significant threat to our
economic well-bcll1g or our monetary system, The amount of counterfeit currency passed in the

2
United States each year is less than one one-hundredth of one percent of currency in circulation, and
the diligent efforts of the Secret Service have meant that most counterfeit bills are never even passed
to the public. Nevertheless, as advanced computer based reprographic technologies continue to
evolve, the deterrent features of our current currency will become increasingly less effective. As a
result, we must take steps now in order to address a threat that will increase as technology
improves. That is what our program is all about - attacking the future technological threat before it
fully evolves.
Secretary Bentsen has authorized the final development and testing of a set of new counterfeit
deterrent features that will significantly increase our currency's defense against reprographic
technologies. These features have been taken from an inventory studied by the National Academy
of Science and augmented with research by the Bureau of Engraving and Printing. Furthermore, the
Bureau studied the currencies of other countries not only for an assessment of their security features
but also for insights into their production and circulation requirements. These insights were helpful
for our development program. The special large scale production and circulation characteristics of
U.S. currency made the implementation of certain of those features impractical; however, our new
design incorporates a number of the most advanced and effective technologies used anywhere in the
world.
The new features authorized for testing and development include changes in the paper, ink,
and design of currency notes. Major among them are an enlarged off-center portrait on each
denomination, a matching watermark, an enhanced security thread, and microprinting in the design
and on planchettes embedded in the paper. There are also interactive patterns which turn into
irregular, wavy moire patterns when copied. In addition, a variety of covert but machine-readable
features will be added for banking system use. We expect a production design to be finalized in
1995, and we should be ready to issue new design $100 bills about a year later. Pete Daly and Tom
Ferguson from the Bureau of Engraving and Printing will present the features and plan in more
detail.
We would like to call your attention to several points concerning the security aspects of this
program:

The program is an orderly, pre-emptive plan to protect
U. S. currency from counterfeiting which could be
facilitated by advancing technology.

The new design features work in synergy, as a system. No single feature alone can
provide enough counterfeit deterrence to withstand the technological threats we expect
will develop in the future.

Because the technology available for counterfeiting is evolving, no longer will U. S.
currency be as static in design as it has been. Therefore, elasticity must be built in
now to accommodate the inclusion of new deterrents and the discontinuance of those
that lose their effectiveness as the paths of technology develop.

3
4.

The combination of overt features will augment the ability of merchants and the
public to more readily identify genuine notes,. thereby strengthening ou~ fro.nt-line
defense against counterfeiting. At the same tIme, the covert features wIll aId Federa:
Reserve processing and add another level of security.

The plan is cost effective and not disruptive to existing cash processing system or
world use of the dollar.

The plan is not a response to a crisis;
it is not a response to any current counterfeiting case.
It ~ a responsible, forward-looking, preventive program.

It is clearly in the best economic and political interest of the United States to have a
freely circulating currency relied upon everywhere as a symbol of strength and a trustworthy
medium of value. However, it also makes our currency a prime candidate for illicit use and a
favon te larget of counterfeiters. Despite this, world con fidence in U. S. currency remains extrernel~
high, and, as undesirable and serious as counterfeiting is, it does not now pose a serious problem
for our currency system. However, there are no absolutely counterfeit-proof documents, and there
will undoubtedly be continuing attempts to counterfeit U.S. dollars with the use of modern
technology. We need to strive to stay ahead of that curve with high security currency features. Th~
proposed features necessitate some design changes, but the traditional look of U.S. currency will D~
largely maintained. The size, national symbols, and colors will be the same as they are now.
Before concluding, I should touch on some approaches that were explicitly and unanimousl)
rejected by our commIttee and by Secretary Bentsen. There have been suggestions that perhaps tne
U.S. should demonetize and recall its existing currency and issue a new one. The objective would
be to nush out hordes of cash, and disnlpt various money-laundering methods associated with tax
evasion and drug trade. Other suggestions have been made for separate domestic and internation~
\'~rsions of U. S. curr~ncy.
Our com mittee considered these ideas and concluded that they are not viable options, and
would be overreactions to the situation as we now know it. The United States has never recalleQi
demon~tized any of its currency and will not do so now. Such an act would touch on highly
sensiti\'e international issues and work against the larger economic interests of the United States D\
disrupting the beneficial world reliance on the dollar.

We do recogniz~ that. since ~xisting currency will continue to be valid, we need to contir..:
counterfeit detection and enforcement programs with them in mind. The Secret Service has c.n
olltstanding record in this r~gard, and Mr. Caputo will explain more about that ongoing prograIT.
In addition, the Fed~ral Reser;e will continue to destroy older bills that pass through the banki~E
system, so that, over tim~, th~ vast majority of bills in use will be of the new design.

4
Treasury believes that the necessary strengthening of the security of our currency can be
achieved in an orderly way over the next several years with the introduction of a new generation of
currency. This will keep us ahead of the technological curve, add important assurance for the
integrity of our currency domestically, and help assure that the dollar will continue as a currency of
choice around the world.
My colleagues and I will be happy to respond to any questions members of the committee
may have.

IREASURY
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C. .20220. (202) 622-2960

FOR RELEASE UPON DELIVERY
EXPECTED AT 10:00 A.M.
JULY 13, 1994

STATEMENT OF MARY ELLEN WITHROW
TREASURER OF THE UNITED STATES
BEFORE THE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
U.S. HOUSE OF REPRESENTATIVES
JULY 13, 1994

For Rekase upon Delivery
Expected at 10:00 a.m.
Ju Iy 13, 1994

STATEMENT OF MARY ELLEN WITHROW
TREASURER OF THE UNITED STATES
BEFORE THE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
U.S. HOUSE OF REPRESENTATIVES

Good morning, Mr. Chairman and members of the Committee. Thank you for this
opportunity to testify before your committee on the redesign of U.S. currency_
We are here because of the importance of protecting the integrity of U. S. currency,
and because the changes to the currency which we are considering will further the continuing
efforts to maintain that integrity.
The U. S. dollar has come to symbolize the strength and stability of our country and
the integrity of our economy. It actually serves as a world currency, and is vital in that role.
To maintain this status, U. S. currency must be protected against the threat posed by modern
technology. But if the changes we are recommending are to be effective, they must also be
universally recognized and understood by the public. Throughout the world, the new style
notes must be as readily recognized and accepted as the present design.
As you know, Mr. Chairman, some enhancements already have been successfully
introduced into U.S. currency. These include the security thread and microprinting seen in the
Series 1990 notes. However, compared to these changes, the enhancements in the new
currency will be dramatic -- the first change in the basic appearance of U.S. currency in 65
years. This makes the issuance of a new design of U. S. currency especially momentous and
the mission of public education critical.
The public must be reassured that previous versions of our currency are still valid and
will not be recalled: U. S. currency has never been demonetized and will not be demonetized
in this case. This message needs to be underscored well in advance of the release of the first
notes with the nev. design. In this way we can assure confidence and continuity in the
handling of U.S. currency and a\'ert public confusion as we change to the new design. To
maximize public acceptance and to minimize any confusion, the new currency will maintain
many traditional American elements. The new currency will maintain its current size and
coJor~. with portraits of the same historical figures on the faces and the same buildings or
I11l)r1Uments l)[1 the backs,

-2-

Putting forth this information to the public will require a world-wide education
campaign. The effort will be headed by the Treasury, with representation from the Bureau of
Engraving and Printing and the Secret Service, as well as the Federal Reserve Board.
The scope of this effort will be even broader than the campaign to introduce the 1990
series.
Effective methods of explaining the new features must be identified. Multi-media
materials must be prepared, translated into the major languages of the world and sent out for
distribution worldwide. Bank tellers, cash handlers, enforcement and forensic agents must be
trained to distinguish the new currency, and to feel confident in its recognition. By the time
the new design is issued, the public must be well aware of what it will be seeing and know
how to use the new features.
Moreover, this is not likely to be the last change in our currency design. In the future,
more frequent changes will be required, to meet the threat of advances in technology, and each
change will necessitate further public education. Therefore, this campaign will set the stage
and provide a model of operation for future efforts.
Mr. Chairman, we are confident in our decisions for the new currency design. We are
equally confident in the public information campaign. Through the campaign, we will be able
to introduce the new design to full advantage and to assure the world that our currency,
whether the old design or the new, is secure and sound. I am pleased and honored to act as
Treasury spokesperson for this campaign.
Thank you for this opportunity and I will be happy to answer any questions you or
other members of the committee may have.

NEWS
omCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.• 20220. (202) 622-2960

FOR RELEASE UPON DELIVERY
EXPECTED AT 10:00 A.M.
JULY 13, 1994

STATEMENT OF PETER H. DALY
DIRECTOR OF THE BUREAU OF ENGRAVING AND PRINTING
BEFORE THE COl\1MITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
U.S. HOUSE OF REPRESENTATIVES
JULY 13, 1994

For Release upon Delivery
Expected at 10:00 a.m.
July 13, 1994

STATEMENT OF PETER H. DALY
DIRECTOR OF THE BUREAU OF ENGRAVING AND PRINTING
BEFORE THE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
U.S. HOUSE OF REPRESENTATIVES

Good morning Mr. Chairman and members of the Committee. Thank
you for the opportunity to appear before you today to discuss the
technical aspects of U.S. currency redesign. with me is the
Bureau's Assistant Director for Research and Development Thomas
A. Ferguson.
Research into advanced counterfeit deterrent features for U.S.
currency has been underway at the Bureau of Engraving and
Printing over the last decade.

As you know, two new such

features -- a denominated security thread, and rnicroprinting
around the portrait -- were added in the 1990 series currency
primarily to defend against the high fidelity color copiers
entering the world market.

These features cannot be reproduced

on those machines, and appear quite effective in deterring
conventional counterfeiting as well.
to be of series notes before 1990.

Most counterfeits continue

Immediately after implementing the 1990 series, BEP began active
research into next generation counterfeit deterrence.

contracted with the National Academy of Sciences for an updating
of its original 1987 report on anti-counterfeiting technologies
suitable for use on U.S. currency, and conducted a comprehensive
industry survey for emerging or innovative ideas for enhancing
the security of our currency from counterfeiting.

These efforts

resulted in an inventory of 14 features which could be used

-2immediately, and a number of others which have potential but
require further development.
With the strong interest and support of Secretary Bentsen and
Under Secretary Newman, as well as the public statements that you
have made, Mr. Chairman, we began development of a new design for
U.S. currency which could accommodate the production-ready
features while providing sufficient elasticity of design so as to
accommodate new features which might be required later to defend
against even newer technologies.
As you know, the design of U.S. currency has been virtually the
same for over 60 years, with only minor changes.

However, the

combination of rapidly advancing technology and continued strong
world demand for the dollar makes most unlikely a similarly long
period of constant design.

Rather, we have entered an era of

regular change so that we may always stay ahead of the curve and
be as pre-emptive as possible in deterring new counterfeiting
threats.
In creating this new design concept, we have endeavored to retain
the traditional look of the dollar.

Although the visual changes

to this new series U.S. currency will be more dramatic than seen
in many years, we believe it essential to keep as much as
possible of the traditional design so as to minimize any
confusion which may develop during the initial phases of the
changeover.

Accordingly, we have only made changes that allow

for the inclusion of specific counterfeit deterrent features.
Therefore, the size, portrait subjects, and national symbols used
on the new series will be the same as those used on the current
one.

Furthermore, because the NAS determined in their 1987 and

1993 studies that color was an ineffective deterrent against
today's high quality color copiers and computer scanners, the
color of the new series will also remain the same.

Also, the

-3-

same classical banknote style engraving technique will be used on
the portraits, borders, and numbers. What will change, however ,
is the configuration of these elements on the note so as to allow
for the inclusion of new deterrent features or to strengthen the
ones already in use.
At this point the final costs of the enhancements cannot be
defined, as contracts have not been made and prices are dependent
on the final package of features and volumes. However, we
estimate that these enhancements will add approximately 20-25% to
the cost of currency or approximately 1 cent per note. This
would represent an increase of between $7.5 million and $10
million for new $100 bills in the first year of production. The
BEP operates on a revolving fund and the cost of currency,
including these enhancements, is paid for directly by earnings of
the Federal Reserve system. Therefore, no appropriations will be
required to support this effort. Also, as Under Secretary Newman
and Governor Kelley note, the value to the Treasury of wide
acceptance of our currency exceeds these costs by many multiples.

The BEP and the Federal Reserve System are prepared for the
introduction of this new currency. Adequate production capacity
exists to meet both the current demands and the conversion to the
new series.
Mr. Ferguson will detail the design elements, and explain the
technical reasons for their value as deterrents against various
methods of counterfeiting.
Thank you for your attention, Mr. Chairman. I will be pleased to
answer any questions you or members of the committee may have.

DEPARTMENT

THE

TREASURY

NEWS
ornCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220 • (202) 622·2960

RELEASE UPON DELIVERY
ECTED AT 10:00 A.M.
i 13, 1994

STATEl\1ENT OF GUY P. CAPUTO
DEPUTY DIRECTOR
UNITED STATES SECRET SERVICE
BEFORE THE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
U.S. HOUSE OF REPRESENTATIVES
JULY 13, 1994

For Release upon Delivery
Expected at 10:00 a.m.
July 1], 1994

STATEMENT OF GUY P. CAPUTO
DEPUTY DIRECTOR
UNITED STATES SECRET SERVICE
BEFORE THE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
U.S. HOUSE OF REPRESENTATIVES
Good morning Mr. Chairman and members of the Committee.
I

appreciate the opportunity to appear before this Committee and

testify on a topic which I
Today's

announcement

believe to be of utmost importance.

the

new

currency

des ign

represents a

significant step forward, and the Secret Service is pleased to have
played

active

role

the

development

the

program.

Commencing in 1865, the Secret Service has played an integral part
in the investigation and suppression of counterfeit united States
While

currency.

certain

the

techniques

used

that

investigative mission have changed, the commitment on the part of
the agency to maintain the integrity of our currency has remained
constant.
so

have

Just as our methodology has been periodically revised,
the

instrumental i ties

and

techniques

utilized

by the

criminal element involved in the counterfeiting of united States
currency.

Access

variety

technologically

advanced

equipment, has resulted In a significant increase in the general
quality of counterfeit currency.

As the Committee is aware, the counterfeiting of our currency is
not restricted by our territorial boundaries.

To the contrary, we

have seen a significant increase in counterfeit activity abroad.

As an example,

in fiscal year 1993,

in excess of $120 million of

counterfeit u.s. currency was seized abroad.

In contrast, domestic

seizures and counterfeit notes passed on the public accounted for
$44

million.

attributed

The

increased

factors

which

extra-territorial

include,

but

are

activity

not

limited

is
to,

worldwide acceptance of united states currency; the processes by
which

u.s.

currency may be replicated; technological advancements

in the field of reprographics; the ability to easily transit most
countries;

and

the

inherent

problems

associated

with

multi-

jurisdictional enforcement.

While

overseas

counterfeiting

activity

continues

receive

significant media attention, we must not lose sight of the fact
that domestic counterfeiting violations also must be addressed in
an aggressive manner.

In fiscal year 1993,

the Secret Service

suppressed 127 counterfeit plant operations domestically,
arresting 1,899

while

individuals for counterfeit related violations.

During that same period, the conviction rate exceeded 95%.
on data for the first six months of fiscal 1994,

Based

suppression of

domestic counterfeit plant operations and arrests are projected to
increase once agaln. These enforcement statistics attest to both
the current level of criminal activity and the need to maximize
investigative efforts in that same arena.

The results of enforcement initiatives may be more easily measured
than deterrence efforts.

The Secret Service utilizes a variety of

methods designed to minimize an individual's or group's potential

for success in a counterfeit related scenario.

As an example, We

have long maintained liaison activities with commercial vendors who
provide printing supplies and/or equipment to the public.
ongolng

coordination

fore ign,

and

among

and

between

variety

interna tiona 1

law

enforcement

ent i ties,

There is
domestic,
which

designed to ensure, and therefore enhance lines of communication.
The

emphasis

invaluable

which
tool

placed

the

liaison

has

investigation

proven

be an

counterfeiting.

Individuals and groups involved in counterfeiting activities, both
domestically and abroad, continue to evidence multi-jurisdictional
and/ or

international

act i v i ty.

order

aggressively

investigate those involved, it is necessary to effectively mobilize
available resources.
Service

continues

consistent with that initiative, the Secret
as

proven

communication

catalyst

for

authorities involved in the suppression of counterfeiting.

The Secret Service's mission, as it relates to the counterfeiting
of united states currency, is straightforward.
Department of
linked

the Treasury,

efforts

the

our deterrence
part

integrity of our financial system.

the

As a Bureau of the
program

Treasury

is directly
ensure the

The currency redesign program

specifics presented here today provide significant overt and covert
deterrence

features

for

incorporation

into

our

currency.

The

success of our investigations is directly correlated to our ability
to identify counterfeit activity promptly.

The overt features will

allow for easy recognition by the public, which will in turn help

facilitate that process.

The covert features will augment machine

readability and facilitate Federal Reserve currency processing.

I would like to emphasize that from an enforcement point of view,
the integrity of United states currency is dependent upon a two
pronged approach; i.e., enforcement and deterrence.

The efforts

are not mutually exclusive, rather they are co-dependent.

While

enforcement efforts are routinely reactive, security enhancements
are

deterrents,

which

when

incorporated

into

currency

design

provide a proactive approach to counterfeit suppression.

The

efforts

the

part

the

Treasury

Department,

and

particular the Advanced Counterfeit Deterrence Steering committee
and the New Currency Design Task Force, have been significant.

The

results of their involvement and commitment are in evidence today.
There

now

advancements

an
which

currency redesign.

increased
will

awareness

necessitate

of
a

future

technological

continuing

program

Be assured that the Secret Service remains

committed to the mission and takes pride in its continuing ability
to

make

signif icant

impact

the

problem

well

the

before

the

solution.

Again,

thank

Commi ttee,

and

you
to

for

this

emphas ize

opportunity

the

support

strong

Service for the new currency program.
any questions you might have.

appear
of

the

Secret

I would be happy to answer

DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.

THE HISTORY OF PAPER MONEY SINCE THE 18605
1861

The United States Treasury issued paper money for the first time in the form of non-interest
bearing Treasury Notes called Demand Notes.

1862

Demand Notes were replaced by Vnited States Notes. Commonly called "greenbacks," they were
last issued in 1971. The Secretary of the Treasury was empowered by Congress to have notes
engraved and printed, which was done by private banknote companies.

1863

The design of V.S. currency incorporated a Treasury seal, the fine line engraving necessary for
the difficult-to-counterfeit intagl io printing, intricate geometric lathe word patterns, and distinctive
linen paper with embedded red and blue fibers.

1865

Gold certificates were issued by the Treasury against gold coin and bullion deposits and were
circulated until 1933.

1865

The Treasury establ ished the V nited States Secret Service to control counterfeits, at that time
amounting to one-third of circulated currency.

1866

National Bank Notes, backed by V.S. government securities, became predominant. By this time,
75 percent of bank deposits were held by nationally-chartered banks. As State Bank Notes were
replaced, the value of currency stabilized for a time.

1877

The Department of the Treasury's Bureau of Engraving and Printing (HEP) started printing all
V.S. currency, although other steps were done outside.

1878

The Treasury was authorized to issue Silver Certificates in exchange for silver dollars. The last
issue was in the Series of 1957.

1910

BEP assumed all currency production functions, including engraving, printing, and processing.

1913

After 1893 and 1907 financial panics, the Federal Reserve Act of 1913 was passed. It created
the Federal Reserve System as the nation's central bank to regulate the flow of money and credit
for economic stability and growth. The system was authorized to issue Federal Reserve Notes,
now the only V.S. currency produced and 99 percent of all currency in circulation.

1929

Currency was reduced in size by 25 percent and standardized with uniform portraits on the faces
and emblems and monuments on the backs.

1957

Paper currency was tirst issued with "In God We Trust" as required by Congress in 1955. The
inscription appears on all currency Series 1963 and beyond.

1990

A security thread and microprinting were introduced, tirst
counterfeiting by advanced copiers and printers.

$50 and $100 notes, to deter

DEFINITIONS OF FEATURES

Security Thread. A security thread is a thin thre.'ld or ribbon running through a
banknote substrate. It is a versatile feature, with many types currently available,
including microprinted, metallic, magnetic, windowed and imbedded. The thread
currently in use in U.S. currency is an embedded, microprinted thread which can
be seen when held to a light. This characteristic makes it impossible to copy with a
color copier, which uses reflected light to generate an image.

Watennark. A watennark is an image fonned by purposely creating localized
variations in the paper density during the papermaking process. TIle image is visible as
darker and lighter areas when held against a light source. Like the embedded thread, it
does not copy on color copiers.

Color-Shiftine Inks. These inks change color when viewed from different angles. For
instance, an ink that may appear gold when viewed directly may

~hange

to green when

viewed obliquely.

Moire-Generatine Line Stnlctures. These types of line structures appear nonnal to the
human eye but cannot be properly resolved by scanning equipment. This results in the
creation of spurious images, or moire patterns, in the digital output, producing a copy
that is noticeably distingubhable from the original.

July 13, 1994

FEATURES UNDER CONSIDERATION

Iridescent
fv1 i cropri nted
Planchettes

f\/IachineIJetectablc

Thread

Positions by

Thread

I)cnolni nation

•

-4

..
• ~

Intaglio

...
'<

rv11croprinting

Distjnctl ve and
NlachincDctcctahlc
Fibers

(

MoireGenerating
Line Structures

r---"

Larger,
Off-Center
Portrait

II'

Co]or-Shifting
Ink

Localized
Portrait
Watennark

,)'haded portion\' indicate areas for nlunerals,
tities and traditional engraved borders.

Addition3:

MachineDetection
Features

July 13, 1994

CURRENT SECURITY FEATURES
SERIAL
NUMBERS

NEW FEATURES
TO DETER COUNTERFEITING
WITH ADVANCED COPIERS,
SCANNERS, AND PRINTERS.

FEDERAL
RESERVE SEAL

Two •• rla' numb." dl .. ·
tlnctlvely .lyled ond even·

Iy Iplced. Ink color •• me
a' n ••• ury laal. No fwo

BORDER

' •• ulng

fir •• let1.r In two •• rla'
numbers.

not •• of •• m • •• rl •• and
denomination hive •• me
aerla' number.

Border'. fine line. and
lacy, webllk. d •• lgn dis·
tinct and unbroken.

Federl' R ••• rye
Bank. Cod. len.r •• me I ..

I·

FIBERS
SECURITY THREAD

Tiny red and blue IIbers
embedded In paper.

Embedded polyeater Itdp
with repeated USA SO or
USA 100 In an up-anddown paHem. Visible when
held to light. Cannot be
reproduced In reflected

light ot copiers.. In new Ser1990 $50 and $100

ies

notel.

I(lt
-=7:,c-.u!..

MICROPRINTING
"'The UnUed Stalel of Amer·
ica" printed repeatedly on
sides ot portrait. Let1en too
,mall to read without a mag-

nifier or for djstlnct copier
reproduction. In new Series

PORTRAIT
Lifelike portrait distinct
trom fine. acreenllke back"
ground.

Sawtooth points .harp, dis·
tinct. and unbroken. Se81'.

co.or same as two serial

1990 S50 ond S100 note ...

Published 1991

TREASURY
SEAL

numbers.

ENGRAVED
PRINTING

PAPER

Engraved plate prlr,tll"lg
gives new notes embossed
'1eel ..

CoHon and linen rag paper
hal s'rong. pliable 4e"I"
No watermark,

DENOMINATION
Note's Yalu. on Cornen
lam. a. over Trealury

..al.

DEPARTMENT

THE

TREASURY

OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220 • (202) 622-2960

Remarks of Deputy Treasury Secretary Roger Altman
Before the Democratic Leadership Council Southwestern Forum
Austin, Texas
June 25, 1994
There are two reasons I'm particularly happy to be here today. The first is the DLC. I've
long been a supporter and I think it's an important and forward looking influence. Lots of
credit is due to AI From and the others who did the hard work to make the DLC into such
a force.
The second is that I have a very soft spot in my heart for Austin. It was here, in December
1992, that I met with someone who has since had a great influence on my life. And that's
Lloyd Bentsen. Perhaps there's a more able, more effective leader in this country, but you'd
have to spend a lifetime looking for him. It's been a special privilege for me to work so
closely with him.
I'd like to talk a little bit about the record of this Administration and how it squares with
the principles of the DLC. But, first, let me put this question into a wider perspective. The
United States, it seems to me, is at a cross-roads. We remain the richest nation on earth
and the only superpower. And many of our strengths are as deep as ever - our technology
and innovation, our system of higher education, our military.
But, we have been weakening ourselves over the past fifteen or twenty years and everyone
in this room knows it. It's not unpatriotic or un-American, or pessimistic to say so; it's a
reality. Living standards for most Americans have been stagnant, after generations of
upward mobility. Crime runs through too many of our towns and our cities and personal
security is elusive for many. The gaps between the haves and the have nots in our society
have been widening, and the demands of the global information age make it harder to find

LB-948

good jobs at good wages. The bedrock values of community and neighbor and church and
family are more fragile now. And cynicism runs deep in our land.
Into these anxieties, a few years ago, stepped the DLC. Founded on the notion that the
Democratic Party had to look to the future, not the past. That this Party isn't as effective
as it used to be and needed redirection. And, in many respects, the rise of the DLC led to
the rise of Bill Clinton. A new Democrat who campaigned and now governs on themes of
community, responsibility and investment. Sure, the DLC doesn't agree with every single
decision he's made, but he has stuck to its principles and more closely than he's given credit
for.
And, what has he done? Start with the economy, which was the central issue in the 1992
campaign. The new President's very first action was to come forth with a dramatic
economic plan. It called for finally fixing the deficit by cutting $500 billion over five years
and with no gimmicks. And it called for increasing public investment in a few areas where
only the government can lead. In other words, shifting federal priorities toward investment
ewn in the context of declining deficits. After one of the bloodiest legislative battles in
many years, Congress passed it.
Now, did most people expect this new, young, Democratic President to attack the deficit that
way? I don't think so. He went against the grain. And, it has worked; the deficit has been
cut in half, relative to its claim on GDP. We will have three years of falling deficits for the
first time since Harry Truman.
And that whole prospect triggered a precipitous drop in interest rates. The credit-sensitive
industries - autos, housing, construction - got going. They kicked the economy into gear.
Now, it's humming: 3.4 million new private sector jobs in less than 18 months; the
unemployment rate down to 6%; we see 3% growth; only 3% inflation and a similar outlook
for next year. Yes, interest rates have risen some, as they always do when economies
strengthen, but they're still low by standards of the past 25 years.
Every Administration always says that it wants steady growth with low inflation. Not many
deliver on that, but Bill Clinton has.

3
And the most encouraging development of all is that private investment is up sharply.
Investment in equipment - the key to productivity - rose 18% last year and is expected to
rise 8% this year. That's crucial because higher productivity is the key to higher standards
of living.
If you wonder why so many Americans have experienced stagnant incomes, you need look
no further than the poor investment trends of recent years, including a 40 year low in the
net private investment share of GDP in 1992. That's why cutting the deficit is so important
-- to direct more of our savings into investment.
Let's turn to the other side of investment - the President's public investments. Why does
he care so much about them in an age when it's fashionable to describe all public spending
as bad?
First, because there are areas where investment can only come from governmenteducation, basic research, public infrastructure, to name three. And, just as our private
inVestment had been too low, so was federal investment. I stress the word investment
because federal spending wasn't too low, just the investment portion of it.
Second, because we live in an age of mobile capital and mobile production where the one
crucial economic asset which is here to stay is our workforce. But, the new global age
requires that our workers be better educated and better trained. We're all familiar with the
discouraging data on educational achievement and the shortage of job training in this
country. We have been underinvesting in our workforce and must reverse that.
Those are the principles of our public investment strategy. The Congress has supported
most of the Clinton proposals in this area.
that level this year.

We got nearly 70% last year and we'll be near

There's the Earned Income Tax Credit: an incentive to work. We're now extending it to
20 million Americans. It's based on a simple promise -- if you work full time and have a
family, you won't live below the poverty line.

There's the National Service Plan: to raise the number of college educated workers. Again
a threshold promise. We'll finance your college education if you agree to two years of
community service or to a tough regime of loan repayment once you start to work.
There's Head Start: to prepare low income children for school, serving 40,000 more
children this year and 90,000 more next year. And there are several others, which I won't
detail here. They are investments, not pork.
And we're financing these in the context of a freeze on discretionary spending. That's right.
We're cutting other programs to pay for these investments. That's cut and invest and that's
the DLC.
And then there's an aggressive investment agenda still ahead. The top priorities are welfare
reform and the Re-employment Act - both aimed at better preparing people for the work
force: again, an investment in work. And then there's health care, and I want to say a word
about that.
There are three key realities about our present health care system. First, we have the best
base of medical technology and R&D and advanced care in the world. Second, we're
spending almost twice as much as any other industrialized nation and covering a smaller
percentage of our population. Third, the affluent are covered and so are the poor. It's the
middle class where the uninsured are and where the risks are.
What is President Clinton basically trying to do in light of these realities? He's trying to
achieve what every other G-7 nation has - universal coverage. If you're sick, you're covered;
if you move, you're covered; if you lose your job, you're covered. And, as so many
experiments at the State level have shown, you can't get costs under control without
universal coverage. Otherwise there is so much shifting of costs onto those with coverage
that they can't be controlled.
He's trying also to build two old-fashioned economic rules into our health care system competition and cost consciousness. Competition by creating the same purchasing power
for small business, the self employed and non-workers as big business has. In other words,
volume discounts. And, cost consciousness by requiring that another 30% of Americans pay
something out of their own pockets for health care so they'll shop around for it.

5
Now, there rarely has been a public debate more heated and more vitriolic than the health
care debate we've been seeing. There is enough misinformation, disinformation and
distortion to last a lifetime. If you go back, you'll see that it's just like the Social Security
debates of the 1930's.

It won't create a giant new bureaucracy. It
will be deficit neutral in the early years and then cut future deficits. It will reduce the
crushing burden on business of skyrocketing health costs, and it will eventually cover every
But , there will be a health care bill in 1994.

American.
My friends, let's put aside the daily slings and arrows and ask, what is the President
accomplishing? He's doing what he was elected to do: he's acting, he's leading.
They said the economic plan was dead, but it passed and it's working. They said that the
Brady Bill and the assault weapon ban would never be passed, but they were. They said
that the seven-year-old GAIT negotiations would never be consummated, but they were and
the legislation will pass this year. Now, they're saying health care is dead. Well, it isn't.
There's going to be a bill, and a good one. And, fifty-one years after the first national
health insurance legislation was introduced.
Internationally, our most important relationship - Russia - is working well. We're leading
a worldwide effort to facilitate Russia's economic conversion and there are some
encouraging signs. Our second most important relationship is China, where the President
recently made a courageous decision and solved the problem he inherited. The Middle
East? - There are genuine peace negotiations between Israel and the PLO for the first time
ever.
I began by saying that America is at a crossroads and that our society is under great stress.
And I've talked about the Clinton Administration and what we're trying to do about it. And
how we have an aggressive, imaginative President who's leading.
But. the ultimate solutions to our social problems don't lie in Washington and they don't lie
in Austin. They lie on everyone's street corner; at everyone's church, neighborhood center,
hospital and homeless shelter. Because it is only you and I as individual citizens who can
strengthen the values which are at the center of American life. The values of community,

of neighbor, of volunteerism and of the helping hand. It is up to us as individuals to live
these principles, not just talk about them.
Let me close with an example: at Boston City Hospital - a municipal facility - there's a
program called Reach Out and Read (ROAR). It's very simple. Older people come to the
waiting rooms and read to children and give them free books. Of the children who visit that
hospital, 250/0 are cognitively behind; they're poor, come from broken families. But, the act
of reading awakens in them an interest in it, both among the children and the parents. It's
simple, but it makes a difference. And, that can be more rewarding, in personal terms, than
working on the most complex federal legislation or the most visible public policy problem.
Please, think about it.

DEPARTMENT OF THE TREASURY
WASHINGTON, D.C. 20220

Hedging Regulations: summary
Filed July 13, 1994
B~ckground.

Many businesses reduce risks arising from normal
operatlons by entering into hedging transactions.
For example, a
manufacturer may hedge the risk of increases in the price of a
commodity used in manufacturing its finished goods by entering
into a "long" futures contract to purchase that commodity at a
fixed price at a future date.
If the price of the commodity
increases, the manufacturer has a gain on its futures contract
that is intended to offset the higher purchase price of the
commodity.
The tax treatment of gains or losses on a business hedging
transaction is an element of the cost of that transaction to the
business. Uncertainty in tax treatment could discourage a
business from entering into hedging transactions that would
otherwise serve to reduce risks. The proper tax treatment of
gains and losses from business hedging activities has been
uncertain since the Supreme Court rendered its decision in
Arkansas Best Corp. v. commissioner, 485 U.S. 212 (1988).
This
uncertainty was so significant, in fact, that Congress requested,
in the legislative history of the Omnibus Budget Reconciliation
Act of 1993, that the Treasury study the treatment of hedging
transactions and make recommendations to the tax writing
committees on the best resolution to the problem.
On october 20, 1993, temporary and proposed regulations
relating to the character and timing of gains and losses from
most common business hedging transactions were published in the
Federal Register. The approach taken in these regulations was
intended to resolve the controversies regarding business hedging
transactions created by the Supreme Court's decision in Arkansas
Best.
The regulations were generally well-received, however,
comments were made at the public hearing and in subsequent
communications. After considering those comments, we are now
issuing final regulations.
Final Regulations. The final regulations generally adopt the
approach of the proposed and temporary regulations, with certain
modifications.
Among the most important modifications is the
addition of a rule that will allow most taxpayers to hedge their
purchases of non inventory supplies. The rule provides that
hedges of purchases of non inventory supplies will receive
ordinary gain or loss treatment if a taxpayer uses, rather than
sells, all but a negligible portion of those supplies.
Thus, for
example, a cattle farmer hedging the cost of feed, or an airline
hedging the cost of jet fuel, may be eligible for ordinary
treatment on these hedges.
The final regulations also contain

more detail on many of the definitions and operational aspects of
the proposed and temporary regulations for which taxpayers
requested additional guidance, and generally provide flexibility
to taxpayers in applying the regulations to their specific
hedging activities.
Newly Proposed Regulations.
In addition to the final
regulations, a new set of rules has been proposed to address
hedging transactions entered into by members of a group of
corporations filing consolidated federal income tax returns.
The newly proposed regulations provide guidance on the
application of the final character and timing regulations to
hedging transactions entered into by members of a consolidated
group. Guidance in this area is necessary because many
businesses that are conducted through separate but related
corporations centralize their hedging operations in a single
corporation.
Summary. The proposed and temporary regulations issued in
october were an important step in the effort to clarify the tax
treatment of hedging transactions. The final regulations
continue that progress, and also provide taxpayers sufficient
flexibility to apply the rules to their specific types of hedging
activities. The newly proposed regulations will also provide
certainty in the tax treatment of hedging transactions undertaken
by members of consolidated groups. The regulations do not cover
all hedging transactions.
For example, a hedge of an ordinary
stream of income from a capital asset (such as a hedge of
dividend or interest income from an investment asset) is not
covered by these regulations. Nevertheless, the final and newly
proposed regulations will resolve much of the uncertainty that
existed previously with respect to many common business hedging
transactions.

[4830-0l-u]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
[TO 8554]
RIN l545-AS96
Clear Reflection of Income in the Case of Hedging Transactions
AGENCY:

Internal Revenue Service (IRS), Treasury.

ACTION:

Final regulations.

SUMMARY:

This document contains final regulations relating to

accounting for business hedging transactions.

Elsewhere in the

Rules and Regulations portion of this issue of the Federal
Register, the IRS is issuing final regulations to clarify the
character of gain or loss recognized from the sale or exchange of
property that is part of a business hedge.

The final regulations

in this document are needed to provide guidance to taxpayers
regarding when gain or loss from common business hedging
transactions is taken into account for tax purposes.
DATES:

These regulations are effective [INSERT DATE OF

PUBLICATION OF THIS DOCUMENT IN THE FEDERAL REGISTER].
For dates of applicability of these regulations, see
Sl.446-4(g) .
FOR FURTHER INFORMATION CONTACT:

Jo Lynn Ricks of the Office of

the Assistant Chief Counsel (Financial Institutions and
Products), Internal Revenue Service, 1111 Constitution Avenue,
NW, Washington, DC 20224 (attn:

CC:DOM:FI&P).

(202) 622-3920 (not a toll-free number).

Telephone

-2SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these final
regulations has been reviewed and approved by the Office of
Management and Budget in accordance with the Paperwork Reduction
Act (44 U.S.C. 3504(h»

under control number 1545-1412.

The

estimated annual burden per respondent or recordkeeper varies
from .1 to 10 hours, depending on individual circumstances, with
an estimated average of .5 hours.
Comments concerning the accuracy of this burden estimate and
suggestions for reducing this burden should be sent to the
Internal Revenue Service, Attn:

IRS Reports Clearance Officer,

PC:FP, Washington, DC 20224, and to the Office of Management and
Budget, Attn:

Desk Officer for the Department of the Treasury,

Office of Information and Regulatory Affairs, washington, DC
20503.
Background
On October 20, 1993, the IRS published in the Federal
Register (58 FR 54077) a notice of proposed rulemaking (FI-54-93)
relating to accounting for business hedging transactions.

The

notice also contained proposed amendments to regulations under
sections 446 (relating to accounting for notional principal
contracts) and 461 (relating to general rules on the taxable year
of deduction).
On January 19, 1994, the IRS held a public hearing on the
proposed regulations.

In addition, the Service received a number

-3-

of written comments on the proposed regulations.

The proposed

regulations, with certain modifications and changes, are adopted
as final regulations.

The changes, and several of the

suggestions that were not adopted, are discussed below.
Explanation of provisions
Under the final regulations, a hedging transaction defined
in Sl.1221-2(b) must be accounted for under the rules of
§1.446-4.

This requirement applies regardless of whether the

character of the gain or loss on the hedging transaction is
determined under Sl.1221-2.

Thus, for example, certain section

988 transactions that are described in Sl.1221-2(b) are accounted
for under the rules of this section.
The regulations require taxpayers to clearly reflect income
by reasonably matching the timing of the income, deduction, gain,
or loss from a hedging transaction with the timing of income,
deduction, gain, or loss from the hedged item or items.

The

regulations generally provide significant flexibility to
taxpayers in determining the appropriate method of accounting for
their different hedging transactions.
Some commentators suggested that any hedge accounting method
employed by a taxpayer for financial statement purposes should be
treated as satisfying the matching requirement.

Because the

financial accounting standards for hedges are in a state of
development, however, the final regulations do not expressly
sanction the use of financial accounting methods.

Nevertheless,

the Service and Treasury expect that the hedge accounting methods

-4employed by most taxpayers for financial accounting purposes will
satisfy the clear reflection standard in the final regulations.
The final regulations require taxpayers to maintain books
and records containing a description of the accounting method
used for each type of hedging transaction in sufficient detail to
demonstrate how the clear reflection standard is met.

For each

hedging transaction, in addition to the identification required
by the regulations under section 1221, the final regulations
require whatever more specific identification is necessary to
verify the application of the method of accounting used by the
taxpayer for that transaction.
various commentators requested that the regulations provide
specific examples or other guidance on the type of additional
information the IRS expects taxpayers to provide.

Because the

identification that is needed depends upon the method of
accounting being used and the types of items or risk being
hedged, however, specific rules cannot be provided.

For example,

taxpayers using a mark-and-spread method of accounting for
aggregate hedges will identify the spread period in their books
and records, but taxpayers using other methods will not.
The proposed regulations provided no specific guidance on
the appropriate method of accounting for global hedges and other
hedges of aggregate risk.
comments on this issue.

The preamble, however, solicited
Many commentators suggested that the

regulations should provide for an aggregate hedge account, in
which both the hedging transactions and the hedged items would be

-5-

accounted for under a particular method.

Methods suggested

included a periodic mark-to-market method modeled on the mixed
straddle accounts of section l092(b) and realization-based
methods with loss-deferral or loss-limitation provisions.
Because these regulations concern only accounting for
hedging transactions, the IRS and Treasury are concerned about
expanding the regulations to allow mark-to-market accounting for
hedged items in an aggregate hedge account.

Many taxpayers are

not currently using mark-to-market accounting, and general
changes to their methods of accounting for hedged items would
create issues that are beyond the scope of the regulations.
Realization-based methods of accounting for aggregate hedge
accounts would only be appropriate if coupled with loss-deferral
or loss-limitation provisions, and the IRS and Treasury are
concerned about their authority to impose these restrictions.
Accordingly, the regulations do not adopt the suggestion that an
aggregate hedge account should be permitted.
The final regulations restate the general matching rule for
hedges of aggregate risk and require taxpayers to match the
timing of income, deduction, gain, or loss from the hedging
transaction to the timing of the aggregate income, deduction,
gain, or loss from the items being hedged.

The regUlations

further provide that the "mark-and-spread" method currently
employed by many taxpayers to account for hedges of aggregate
risk for financial accounting purposes may provide an appropriate
and reasonable match.

Under the mark-and-spread method described

-6-

in the regulations, the taxpayer periodically marks the hedging
transactions to market and takes the gain or loss into account
over the period for which the hedge is intended to reduce
exposure to risk.

Similar spreading applies to realized income,

deduction, gain, and loss.

Under this method, the period over

which the hedging transaction is intended to reduce risk (and
thus the period over which the gains and losses are taken into
account) may change over time, depending upon a taxpayer's
particular hedging strategies.

The period used, however, must be

reasonable and consistent with those strategies.

It is

anticipated that the identification and recordkeeping required by
§§1.446-4(d) and 1.1221-2(e) will support the reasonableness of a
taxpayer's spread period.
The mark-and-spread method is not the only method that
clearly reflects income for hedges of aggregate risk.

The final

regulations also state that, if a taxpayer hedges its aggregate
risk with a notional principal contract, taking into account
gains and losses in accordance with §1.446-3 of the regulations
may clearly reflect income.
be appropriate.

Other methods of accounting also may

Like the proposed regulations, the final

regulations allow flexibility in attaining the reasonable
matching required by the general rule.
The proposed regulations contained several provisions
applicable to inventory hedging transactions.

The general rule

in the proposed regulations was that gains and losses on hedges
of inventory purchases may be taken into account at the same time

-7they would be taken into account if they were elements of
inventory cost.

Similarly, gains and losses on hedges of sales

of inventory may be taken into account at the same time they
would be if they were elements of gross sales proceeds.
In response to comments, the final regulations clarify the
general rule for inventory hedges and extend it to hedges of
aggregate inventory risk.

A hedge of an aggregate risk cannot be

associated with particular purchase or sales transactions.
Accordingly, the final regulations provide that taxpayers may
account for hedges of purchases under the mark-and-spread method,
with the modification that the gain or loss spread to particular
periods is taken into account in the same period it would have
been if it had been an increase or decrease to inventory cost
incurred in the particular period.

Similarly, a taxpayer may

account for hedges of sales of inventory under a mark-and-spread
approach, with the gain or loss that is spread to a particular
period taken into account in the same period it would have been
if it had been an increase or decrease to gross sales proceeds.
The final regulations clarify certain simplified methods of
accounting for inventory hedges that were provided in the
proposed regulations.

First, the proposed regulations provided a

special rule allowing taxpayers to take hedging gains and losses
into account when realized, if the hedging transactions are
closed when the hedged inventory items are sold and units are
included in inventory at cost.

Because the general rule has been

-8-

clarified to encompass this approach, this provision is not
separately stated in the final regulations.
Second, the final regulations continue the simplified method
of taking into account gains and losses on hedges of both
purchases and sales as though those gains and losses were
elements of inventory cost.

The regulations make it clear that

it is realized gains and losses that are so taken into account.
The regulations also continue to prohibit the use of this method
by LIFO taxpayers.

The IRS and Treasury believe that significant

distortions of income might result if gains and losses on sales
hedges became buried in inventory cost layers.
Finally, the simplified method of marking to market
inventory hedging transactions is clarified to allow the mark-tomarket gain or loss to be taken into account immediately, instead
of being treated as an element of cost or gross proceeds.

The

final regulations continue the proposed prohibition on the use of
this method by LIFO taxpayers and by taxpayers employing a lowerof-cost-or-market method of accounting for inventory.

Moreover,

this method may be used only if items are held in inventory for
short periods of time.
The final regulations clarify when the built-in gain or loss
on the hedging transaction is taken into account where a taxpayer
disposes of the hedged item but does not dispose of the hedging
transaction.

In this situation, the taxpayer must appropriately

match the built-in gain or loss on the hedging transaction to the
gain or loss on the disposed item.

This matching may be met by

-9-

marking to market the hedge on the date of disposition of the
hedged item.

If the taxpayer intends to dispose of the hedging

transaction within a reasonable period, the taxpayer may match
the realized gain or loss on the hedging transaction with the
gain or loss on the disposed item.

However, if the taxpayer

intends to dispose of the hedging transaction within a reasonable
period and the hedging transaction is still in place after that
period, the taxpayer must match the gain or loss on the hedge at
the end of the reasonable period with the gain or loss on the
disposed item.

For these purposes, a reasonable period is

generally seven days.
The final regulations provide rules of accounting for
recycled hedges (positions that previously hedged one item but
that the taxpayer has re-identified as hedging another).

The new

rules are similar to those of the proposed regulations for
treatment of hedges after disposition of the hedged asset or
liability.

A taxpayer recycling a hedge of a particular hedged

item to serve as a hedge of another item must match the built-in
gain or loss on the hedge at the time of the recycling to the
income, deduction, gain, or loss on the original hedged item.
Income, deduction, gain, or loss on the hedge after the recycling
must be matched to the income, deduction, gain, or loss on the
new hedged item, items, or aggregate risk.

This matching may be

accomplished by marking the hedge to market at the time of the
recycling.

-10-

The preamble to the proposed regulations invited comments on
the appropriate accounting for anticipatory hedges where the
anticipated transaction is not consummated.

Most commentators

suggested that gains or losses be taken into account when
realized.

Others suggested that any gain or loss realized on the

hedging transaction be taken into account at the same time it
would have been taken into account if the anticipated transaction
had been consummated and the timing of the gain or loss on the
hedge had been matched with the timing of the gain or loss on the
hedged item.

still others suggested an arbitrary spread period.

The first suggestion was adopted.

The regulations provide

that, if an anticipated transaction is not consummated, any
income, deduction, gain, or loss on the hedging transaction is
taken into account when realized.

The regulations provide that a

transaction is consummated upon the occurrence, within a
reasonable time period, of either the anticipated transaction or
a different but similar transaction for which the hedge serves to
reasonably reduce risk.

The IRS will view the "similar

transaction" parameters broadly to prevent taxpayers from
realizing hedging gains and losses selectively by abandoning a
planned transaction and substituting a similar transaction.
Finally, the regulations grant consent for taxpayers to
change their methods of accounting for hedging transactions.

The

change must be made for transactions entered into on or after
October 1, 1994, and must be made for the taxable year containing
that date.

The change is made on a cut-off basis.

Therefore, no

-11items of income or deduction are omitted or duplicated, and no
adjustment under section 481 is allowed or permitted.

Because

the consent does not extend to changes for a subsequent tax year,
consent for such a change must be requested according to the
procedures established under S1.446-1(e).
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866.
a regulatory assessment is not required.

Therefore,

It also has been

determined that section 553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) and the Regulatory Flexibility Act
(5 U.S.C. chapter 6) do not apply to these regulations, and,
therefore, a Regulatory Flexibility Analysis is not required.
Pursuant to section 7805(f) of the Internal Revenue Code, the
notice of proposed rulemaking preceding these regulations was
submitted to the Small Business Administration for comment on its
impact on small business.
Drafting Information
The principal author of these regulations is Jo Lynn Ricks,
Office of Assistant Chief Counsel (Financial Institutions and
Products), IRS.

However, other personnel from the IRS and

Treasury Department participated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.

-1226 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602 are amended as follows:
PART l--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to
read in part as follows:
Authority:
Par. 2.

26 U.S.C. 7805

* * *

Section 1.446-3 is amended as follows:

The first sentence of paragraph (h) (2) is revised.

The second sentence of the introductory language of

paragraph (h) (5) is revised.
3.

The revisions read as follows:

§1.446-3 Notional principal contracts.

* * * * *
(h)

* * *

(2) Taxable year of inclusion and deduction by original
parties.

Except as otherwise provided (for example, in section

453, section 1092, or §1.446-4), a party to a notional principal
contract recognizes a termination payment in the year the
contract is extinguished, assigned, or exchanged.

* * *

* * * * *
(5)

* * *

The contracts in the examples are not hedging

transactions as defined in §1.1221-2(b), and all of the examples
assume that no loss-deferral rules apply.

* * * * *

-13Par. 3.
S1.446-4

section 1.446-4 is added to read as follows:

Hedging transactions.

(a) In general.

Except as provided in this paragraph (a), a

hedging transaction as defined in §1.1221-2(b)

(whether or not

the character of gain or loss from the transaction is determined
under Sl.1221-2) must be accounted for under the rules of this
section.

To the extent that provisions of any other regulations

governing the timing of income, deductions, gain, or loss are
inconsistent with the rules of this section, the rules of this
section control.
(1) Trades or businesses excepted.

A taxpayer is not

required to account for hedging transactions under the rules of
this section for any trade or business in which the cash receipts
and disbursements method of accounting is used or in which
§1.471-6 is used for inventory valuations if, for all prior
taxable years ending on or after September 30, 1993, the taxpayer
met the $5,000,000 gross receipts test of section 448(c)

(or

would have met that test if the taxpayer were a corporation or
partnership).

A taxpayer not required to use the rules of this

section may nonetheless use a method of accounting that is
consistent with these rules.
(2) Coordination with other sections.

This section does not

apply to-(i) Any position to which section 475(a) applies;
eii) Any section 988 hedging transaction if the transaction
is integrated under §1.988-5 or if other regulations issued under

-14section 988(d)

(or an advance ruling described in §1.988-5(e»

govern when gain or loss from the transaction is taken into
account; or

(iii) The determination of the issuer's yield on an issue of
tax-exempt bonds for purposes of the arbitrage restrictions to
which Sl.148-4(h) applies.
(b) Clear reflection of income.

The method of accounting

used by a taxpayer for a hedging transaction must clearly reflect
income.

To clearly reflect income, the method used must

reasonably match the timing of income, deduction, gain, or loss
from the hedging transaction with the timing of income,
deduction, gain, or loss from the item or items being hedged.
Taking gains and losses into account in the period in which they
are realized may clearly reflect income in the case of certain
hedging transactions.

For example, where a hedge and the item

being hedged are disposed of in the same taxable year, taking
realized gain or loss into account on both items in that taxable
year may clearly reflect income.

In the case of many hedging

transactions, however, taking gains and losses into account as
they are realized does not result in the matching required by
this section.
(c) Choice of method and consistency.

For any given type of

hedging transaction, there may be more than one method of
accounting that satisfies the clear reflection requirement of
paragraph (b) of this section.

A taxpayer is generally permitted

to adopt a method of accounting for a particular type of hedging

-15transaction that clearly reflects the taxpayer's income from that
type of transaction.

See paragraph (e) of this section for

requirements and limitations on the taxpayer's choice of method.
Different methods of accounting may be used for different types
of hedging transactions and for transactions that hedge different
types of items.

Once a taxpayer adopts a method of accounting,

however, that method must be applied consistently and can only be
changed with the consent of the Commissioner, as provided by
section 446(e) and the regulations and procedures thereunder.
(d) Recordkeeping reguirements--(l) In general.

The books

and records maintained by a taxpayer must contain a description
of the accounting method used for each type of hedging
transaction.

The description of the method or methods used must

be sufficient to show how the clear reflection requirement of
paragraph (b) of this section is satisfied.
(2) Additional identification.

In addition to the

identification required by §1.1221-2(e), the books and records
maintained by a taxpayer must contain whatever more specific
identification with respect to a transaction is necessary to
verify the application of the method of accounting used by the
taxpayer for the transaction.

This additional identification may

relate to the hedging transaction or to the item, items, or
aggregate risk being hedged.

The additional identification must

be made at the time specified in §1.1221-2(e) (2) and must be made
on, and retained as part of, the taxpayer's books and records.

-16-

(3) Transactions in which character of gain or loss is not
determined under §1.1221-2.

A section 988 transaction, as

defined in section 988(c) (1), or a qualified fund, as defined in
section 988(c} (1) (E) (iii), is subject to the identification and
recordkeeping requirements of S1.1221-2(e).

See S1.1221-

2(a)(4}(i).

(e) Requirements and limitations with respect to hedges of
certain assets and liabilities.

In the case of certain hedging

transactions, this paragraph (e) provides guidance in determining
whether a taxpayer's method of accounting satisfies the clear
reflection requirement of paragraph (b) of this section.

Even if

these rules are satisfied, however, the taxpayer's method, as
actually applied to the taxpayer's hedging transactions, must
clearly reflect income by meeting the matching requirement of
paragraph (b) of this section.
(1) Hedges of aggregate risk--(i) In general.

The method of

accounting used for hedges of aggregate risk must comply with the
matching requirements of paragraph (b) of this section.

Even

though a taxpayer may not be able to associate the hedging
transaction with any particular item being hedged, the timing of
income, deduction, gain, or loss from the hedging transaction
must be matched with the timing of the aggregate income,
deduction, gain, or loss from the items being hedged.

For

example, if a notional principal contract hedges a taxpayer's
aggregate riSk, taking into account income, deduction, gain, or

-17loss under the provisions of §1.446-3 may clearly reflect income.
See paragraph (e) (5) of this section.
(ii) Mark-and-spread method.

The following method may be

appropriate for taking into account income, deduction, gain, or
loss from hedges of aggregate risk:
(A) The hedging transactions are marked to market at regular
intervals for which the taxpayer has the necessary data, but no
less frequently than quarterly; and
(B) The income, deduction, gain, or loss attributable to the
realization or periodic marking to market of hedging transactions
is taken into account over the period for which the hedging
transactions are intended to reduce risk.

Although the period

over which the hedging transactions are intended to reduce risk
may change, the period must be reasonable and consistent with the
taxpayer's hedging policies and strategies.
(2) Hedges of items marked to market.

In the case of a

transaction that hedges an item that is marked to market under
the taxpayer's method of accounting, marking the hedge to market
clearly reflects income.
(3) Hedges of inventory--(i) In general.

If a hedging

transaction hedges purchases of inventory, gain or loss on the
hedging transaction may be taken into account in the same period
that it would be taken into account if the gain or loss were
treated as an element of the cost of inventory.

Similarly, if a

hedging transaction hedges sales of inventory, gain or loss on
the hedging transaction may be taken into account in the same

-18-

period that it would be taken into account if the gain or loss
were treated as an element of sales proceeds.

If a hedge is

associated with a particular purchase or sales transaction, the
gain or loss on the hedge may be taken into account when it would
be taken into account if it were an element of cost incurred in,
or sales proceeds from, that transaction.

As with hedges of

aggregate risk, however, a taxpayer may not be able to associate
hedges of inventory purchases or sales with particular purchase
or sales transactions.

In order to match the timing of income,

deduction, gain, or loss from the hedge with the timing of
aggregate income, deduction, gain, or loss from the hedged
purchases or sales, it may be appropriate for a taxpayer to
account for its hedging transactions in the manner described in
paragraph (e) (1) (ii) of this section, except that the gain or
loss that is spread to each period is taken into account when it
would be if it were an element of cost incurred (purchase
hedges), or an element of proceeds from sales made (sales
hedges), during that period.

(ii) Alternative methods for certain inventory hedges.

lieu of the method described in paragraph (e) (3) (i) of this
section, other simpler, less precise methods may be used in
appropriate cases where the clear reflection requirement of
paragraph (b) of this section is satisfied.

For example:

(A) Taking into account realized gains and losses on both
hedges of inventory purchases and hedges of inventory sales when
they would be taken into account if the gains and losses were

-19-

elements of inventory cost in the period realized may clearly
reflect income in some situations, but does not clearly reflect
income for a taxpayer that uses the last-in, first-out method of
accounting for the inventory; and
(B) Marking hedging transactions to market with resulting
gain or loss taken into account immediately may clearly reflect
income even though the inventory that is being hedged is not
marked to market, but only if the inventory is not accounted for
under either the last-in, first-out method or the
lower-of-cost-or-market method and only if items are held in
inventory for short periods of time.
(4) Hedges of debt instruments.

Gain or loss from a

transaction that hedges a debt instrument issued or to be issued
by a taxpayer, or a debt instrument held or to be held by a
taxpayer, must be accounted for by reference to the terms of the
debt instrument and the period or periods to which the hedge
relates.

A hedge of an instrument that provides for interest to

be paid at a fixed rate or a qualified floating rate, for
example, generally is accounted for using constant yield
principles.

Thus, assuming that a fixed rate or qualified

floating rate instrument remains outstanding, hedging gain or
loss is taken into account in the same periods in which it would
be taken into account if it adjusted the yield of the instrument
over the term to which the hedge relates.

For example, gain or

loss realized on a transaction that hedged an anticipated fixed
rate borrowing for its entire term is accounted for, solely for

-20-

purposes of this section, as if it decreased or increased the
issue price of the debt instrument.
(5) Notional principal contracts.

The rules of §1.446-3

govern the timing of income and deductions with respect to a
notional principal contract unless, because the notional
principal contract is part of a hedging transaction, the
application of those rules would not result in the matching that
is needed to satisfy the clear reflection requirement of
paragraph (b) and, as applicable,

(e) (4) of this section.

For

example, if a notional principal contract hedges a debt
instrument, the method of accounting for periodic payments
described in §1.446-3(e) and the methods of accounting for
nonperiodic payments described in §1.446-3(f) (2) (iii) and (v)
generally clearly reflect the taxpayer's income.

The methods

described in §1.446-3(f) (2) (ii) and (iv), however, generally do
not clearly reflect the taxpayer's income in that situation.
(6) Disposition of hedged asset or liability.

If a taxpayer

hedges an item and disposes of, or terminates its interest in,
the item but does not dispose of or terminate the hedging
transaction, the taxpayer must appropriately match the built-in
gain or loss on the hedging transaction to the gain or loss on
the disposed item.

To meet this requirement, the taxpayer may

mark the hedge to market on the date it disposes of the hedged
item.

If the taxpayer intends to dispose of the hedging

transaction within a reasonable period, however, it may be
appropriate to match the realized gain or loss on the hedging

-21transaction with the gain or loss on the disposed item.

If the

taxpayer intends to dispose of the hedging transaction within a
reasonable period and the hedging transaction is not actually
disposed of .within that period, the taxpayer must match the gain
or loss on the hedge at the end of the reasonable period with the
gain or loss on the disposed item.

For purposes of this

paragraph (e) (6), a reasonable period is generally 7 days.
(7) Recycled hedges.

If a taxpayer enters into a hedging

transaction by recycling a hedge of a particular hedged item to
serve as a hedge of a different item, as described in
§1.1221-2{c) (2), the taxpayer must match the built-in gain or
loss at the time of the recycling to the gain or loss on the
original hedged item, items, or aggregate risk.

Income,

deduction, gain, or loss attributable to the period after the
recycling must be matched to the new hedged item, items, or
aggregate risk under the principles of paragraph (b) of this
section.
(8) Unfulfilled anticipatory transactions--(i) In general.
If a taxpayer enters into a hedging transaction to reduce risk
with respect to an anticipated asset acquisition, debt issuance,
or obligation, and the anticipated transaction is not
consummated, any income, deduction, gain, or loss from the
hedging transaction is taken into account when realized.

(ii) Consummation of anticipated transaction.

A taxpayer

consummates a transaction for purposes of paragraph (e) (8) (i) of
this section upon the occurrence (within a reasonable interval

-22around the expected time of the anticipated transaction) of
either the anticipated transaction or a different but similar
transaction for which the hedge serves to reasonably reduce risk.
(9) Hedging by members of a consolidated group.
(f) Type or character of income and deduction.

[Reserved.]
The rules of

this section govern the timing of income, deduction, gain, or
loss on hedging transactions but do not affect the type or
character of income, deduction, gain, or loss produced by the
transaction.

Thus, for example, the rules of paragraph (e) (3) of

this section do not affect the computation of cost of goods sold
or sales proceeds for a taxpayer that hedges inventory purchases
or sales.

Similarly, the rules of paragraph (e) (4) of this

section do not increase or decrease the interest income or
expense of a taxpayer that hedges a debt instrument or a
liability.
(g) Effective date.

This section applies to hedging

transactions entered into on or after October I, 1994.
(h) Consent to change methods of accounting.

The

Commissioner grants consent for a taxpayer to change its methods
of accounting for transactions that are entered into on or after
October I, 1994, and that are described in paragraph (a) of this
section.

This consent is granted only for changes for the

taxable year containing October I, 1994.

The taxpayer must

describe its new methods of accounting in a statement that is
included in its Federal income tax return for that taxable year.

-23-

Par. 4.

In S1.461-1, paragraph (a) (2) (iii) (8) is revised to read

as follows:
1.461-1 General rules for taxable year of deduction.

* * *
(2) * * *
(iii) * * *
(a)

(8)

If the liability of a taxpayer is subject to section 170

(charitable contributions), section 192 (black lung benefit
trusts), section 194A (employer liability trusts), section 468
(mining and solid waste disposal reclamation and closing costs),
or section 468A (certain nuclear decommissioning costs), the
liability is taken into account as determined under that section
and not under section 461 or the regulations thereunder.

For

special rules relating to certain loss deductions, see sections
165(e), 165(i), and 165(l}, relating to theft losses, disaster

losses, and losses from certain deposits in qualified financial
institutions.

* * * * *

--24-PART 602--0MB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 5.

The authority citation for part 602 continues to

read as follows:
Authority:
Par. 6.

26 U.S.C. 7805.

section 602.101(c) is amended by adding an entry in

numerical order to the table to read as follows:
§602.101

OMB Control numbers.

* * * * *
(c)

* * *

CFR part or section where identified
and described

Current OMS
control number

* * * * *
1.446-4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545-1412

* * *

* *
Margaret Milner Richardson
Commissioner of Internal Revenue

Approved:

June 3, 1994

Samuel Y. Sessions
Acting Assistant Secretary of Treasury

[4830-01-U]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[FI-34-94]
RIN 1545-AS75
Hedging Transactions by Members of a Consolidated Group
AGENCY:

Internal Revenue Service (IRS), Treasury.

ACTION:

Notice of proposed rulemaking and notice of public

hearing.
SUMMARY:

This document contains proposed regulations relating to

the character and timing of gain or loss from certain hedging
transactions entered into by members of a consolidated group.
These proposed regulations apply when one member of the group
hedges the risk of another member or enters into a hedge with
another member.

The regulations are needed because related-party

hedging is a common business practice and existing regulations
treat as hedging transactions only hedges entered into by a
taxpayer to reduce its own risk.

This document also provides

notice of a public hearing on these proposed regulations.
DATES: written comments must be received by September 26, 1994.
Requests to speak (with outlines of oral comments) at a public
hearing scheduled for October 18, 1994, must be received by
September 26, 1994.
ADDRESSES:

Send submissions to:

CC:DOM:CORP:T:R (FI-34-94) room

5228, Internal Revenue Service, POB 7604, Ben Franklin station,
Washington, DC 20044.

In the alternative, submissions may be

hand delivered between the hours of 8 a.m. and 5 p.m. to:
CC:DOM:CORP:T:R (FI-34-94), Courier's Desk, Internal Revenue

2 -

Service, 1111 Constitution Avenue NW, Washington, DC.

The public

hearing has been scheduled to be held in room 3718, 1111
Constitution Avenue, NW, Washington, DC, 20224.
FOR FURTHER INFORMATION CONTACT:

Concerning the regulations,

Jo Lynn Ricks of the Office of the Assistant Chief Counsel
(Financial Institutions and Products),

(202) 622-3920 (not a

toll-free number); concerning sUbmissions and the hearing, Carol
Savage,

(202) 622-8452 (not a toll-free number).

SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information contained in this notice of
proposed rulemaking have been submitted to the Office of
Management and Budget for review in accordance with the Paperwork
Reduction Act (44 U.S.C. 3504(h».

Comments on the collections

of information should be sent to the Office of Hanaqement and
Budget, Attn:

Desk Officer for the Department of the Treasury,

Office of Information and Regulatory Affairs, Washington, DC
20503, with copies to the Internal Revenue Service, Attn: IRS
Reports Clearance Officer, PC:FP, Washington, DC 20224.
The collections of information are in §§1.1221-2(d) (2) (iv)
and 1.1221-2(e) (5).

This information is required by the IRS to

aid it in administering the law and to prevent manipulation, such
as recharacterization of transactions in view of later
developments.

This information will be used to determine whether

the taxpayer has elected separate-entity treatment under
§1.1221-2(d) (2) and to verify that the taxpayer is properly
reporting its business hedging transactions.

The likely

3 -

respondents and recordkeepers are businesses or other for-profit
institutions.
Estimated total annual reporting and recordkeeping
burden: 75,000 hrs.
The estimated annual burden per respondent or recordkeeper varies
from 1.0 to 40.0 hours, depending on individual circumstances,
with an estimated average of 5 hours.
Estimated number of respondents and recordkeepers:
Estimated frequency of responses:

15,000.

once in the existence of each

respondent.
Background
Final regulations under section 1221, published elsewhere in
this issue of the Federal Reqister, generally provide for
ordinary gain or loss from hedging transactions.

To qualify as a

hedging transaction, a transaction must be entered into in the
normal course of business to reduce certain specified risks of
the taxpayer.

Final regulations under section 446, published

elsewhere in this issue of the Federal Reqister, require
taxpayers to account for hedging transactions in a manner that
clearly reflects income by reasonably matching the timing of
income, deduction, gain, or loss from the hedge with the timing
of the income, deduction, gain, or loss from the item being
hedged.
Because a hedging transaction must reduce the taxpayer's own
risk, the regulations do not apply where a taxpayer hedges the
risk of another taxpayer, even if that other taxpayer is a
related party.

In the preamble to TO 8493, which was published

- 4 -

on October 20, 1993 (58 FR 54037), the IRS requested comments on
the treatment of transactions involving related parties.
Several commentators suggested extending the definition of
hedging transaction to the hedging of a related party's risk.
Many businesses that are conducted through separate but related
entities centralize their hedging operations in a single entity
or a small number of entities that hedge the risks of the entire
business.

Centralizing the hedging function creates economies of

scale and allows the risks of the business to be netted or offset
against each other, with the hedging entity entering into hedges
with unrelated parties only for the remaining net risk.

Thus,

various commentators suggested that the term hedging transaction
should include hedges of the risk of other members of the same
consolidated group, of affiliated corporations filing separate
returns, of controlled but unaffiliated corporations, and of
controlled partnerships.
Explanation of provisions
As a general rule, the proposed regulations adopt a singleentity approach to consolidated groups, applying the hedging
rules to a member's transactions that hedge the risk of other
members of the same consolidated group.

Proposed §1.1221-2(d) (1)

provides that the risk of one member of a consolidated group is
treated for purposes of the hedging rules as the risk of the
other members of the group as if all of the members of the group
were divisions of a single corporation.

Thus, if a transaction

entered into by a centralized hedging member reduces the risk of

5 -

the group as a whole and the other requirements of §1.1221-2 are
met, the transaction qualifies as a hedging transaction.
Many consolidated groups that centralize their hedging
operations execute contracts or enter into other transactions
between the members to transfer risk from the operating members
to the hedging member.

For example, an operating member that

assumes a floating rate liability may enter into an interest rate
swap with the hedging member pursuant to which the operating
member will pay fixed and receive floating.

The hedging member

nets this risk with its other interest rate risk and, if it has a
net risk, may enter into an interest rate swap with a third party
to offset this net risk.
Under the single-entity approach of the proposed
regulations, transactions between members of a consolidated group
are not hedging transactions because they do not reduce the risk
of the group.

Instead, these transactions are subject to the

rules of section 1502 and the regulations thereunder, which
govern the timing and character of income on intercompany
transactions and obligations.

Thus, only a transaction with a

third party can qualify as a hedging transaction.
Several commentators on the proposed character and timing
regulations requested that the IRS adopt a separate-entity regime
for related-party hedges.

They expressed concern that, under a

single-entity regime, a hedging member may not have the
information necessary to comply with the identification
requirements imposed on hedging transactions.

That is, the

hedging member may not have information with respect to the

6 -

transaction that gave rise to the risk that was transferred to it
in the intercompany transaction.
Under a separate-entity approach, an intercompany
transaction that met the definition in §1.1221-2(b) would be
respected as a hedging transaction and accounted for as such, and
the transaction would not be subject to the intercompany
transaction regime.

In other words, if a member of a

consolidated group enters into a transaction to transfer risk to
another member, the transaction would be treated as if it had
been entered into with an unrelated party.
The IRS and Treasury recognize that, where a consolidated
group uses intercompany transactions to transfer risk within the
group, the separate-entity approach may facilitate the
identification of hedging transactions and simplify the
accounting for those transactions.

A generally applicable

separate-entity approach, however, frequently would not clearly
reflect the income of the consolidated group and might be subject
to manipulation.

Moreover, a general separate-entity approach

for hedges would be contrary to the single-entity approach of
recently proposed §1.1502-13, and it would be difficult to
coordinate the treatment of intercompany hedging transactions
with the treatment of other intercompany transactions.
Despite the concern with a general separate-entity approach,
the IRS and Treasury believe that there is less opportunity for
manipulation or distortion if a member of a group enters into a
hedging transaction with another member that is using mark-tomarket accounting for tax purposes.

Thus, when a group contains

- 7 -

a hedging member that accounts for the transaction on a mark-tomarket method of accounting, a limited separate-entity approach
may be acceptable.
Therefore, the proposed regulations allow a consolidated
group to make a separate-entity election.

The election is made

by the group for all of its hedging activities and may not be
revoked without the consent of the Commissioner.

If a group

makes the election, the risk of one member is not treated as risk
of the other members.

Thus, a member can hedge only its own

risk, and an intercompany transaction must be used if one member
of the group wishes to transfer risk to another member.
In an electing group, certain intercompany transactions are
recognized as hedging transactions for purposes of §1.1221-2.

intercompany transaction is treated as a hedging transaction if
it would be a hedging transaction if entered into with an
unrelated party, and if it is entered into with another member
that, under its method of accounting, marks the position to
market.

Thus, for example, an operating member could enter into

a hedging transaction with a hedging member that marks the
position obtained to market under section 475.

As a result of

the separate-entity election, the hedging transaction is not
treated as an intercompany transaction or obligation for purposes
of section 1502 and the regulations thereunder, and any gain or
loss to the member marking to market the position obtained is
ordinary.
This special treatment is provided only for intercompany
transactions entered into with a member that marks its position

to market.

8 -

If an identical transaction is entered into with a

member of the group that does not mark to market the position
obtained, the transaction is subject to the intercompany
transaction rules under section 1502.

Thus, the separate-entity

election is likely to be made only by a group whose intercompany
hedging activity is done with a member that uses a mark-to-market
method of accounting.
The proposed regulations provide identification rules that
conform to the treatment of hedging transactions described above.
If a consolidated group is under the general rule of the
regulations (the single-entity approach), identification is done
as if the members of the group were divisions of a single
corporation.

The member engaging in a hedging transaction with

an unrelated party identifies the transaction and the item,
items, or aggregate risk being hedged, even if the item, items,
or aggregate risk is that of another member.
If a group is under the general rule but uses intercompany
transactions to transfer risk within the group, it may satisfy
the identification requirement by identifying the item, items, or
aggregate risk being hedged, its intercompany transactions, and
its hedging transactions with unrelated parties.

Although the

intercompany transactions are not respected as hedging
transactions, their identification should enable the group to
associate hedging transactions with the item, items, or aggregate
risk being hedged.
If a group makes the separate-entity election, each member
must identify its hedging transactions with unrelated parties,

9 -

its intercompany transactions that are treated as hedging
transactions under these regulations, and the item, items, or
aggregate risk being hedged, as appropriate.
The proposed regulations also provide rules with respect to
the effects of identification and nonidentification.

If a group

is under the general rule, the rules of §1.1221-2(f) apply to a
hedging transaction, but not to intercompany transactions.

If a

group makes the separate-entity election, the rules of §1.12212(f) are extended to intercompany transactions that are treated
as hedging transactions under these regulations.
Finally, the proposed regulations provide new rules with
respect to timing under §1.446-4.

If a group is under the

general rule, it accounts for hedging transactions as if the
members of the group were divisions of a single corporation.

The

income, deduction, gain, or loss on a hedging transaction is
matched with the income, deduction, gain, or loss on the item,
items, or aggregate risk being hedged and not with an
intercompany transaction.

If a group makes the separate-entity

election, the rules of §1.446-4 apply on a member-by-member basis
to hedging transactions with unrelated parties and to
intercompany transactions that are treated as hedging
transactions under these regulations.
It is anticipated that these regulations will apply to
transactions entered into on or after the date that is 60 days
after the publication of final regulations on this SUbject in the
Federal Register.

10 -

All of the rules described above apply only in the case of a
consolidated group.

ThUS, the proposed regulations do not treat

as a hedging transaction the hedging of the risk of a related
party that is not a member of the same consolidated group.

The

IRS is concerned that the single-entity approach is generally not
appropriate where the parties are not members of the same
consolidated group.
outside the context of a consolidated group, taxpayers with
ordinary business risk sometimes enter into transactions to
transfer risk to a related party.

commentators have requested

that these transactions be treated as hedging transactions and
that the entities to which risk is transferred be treated as
realizing ordinary gain or loss on their positions in these
transactions.

The IRS is concerned, however, about whether these

transactions reduce risk, whether the requested ordinary
treatment to the entities receiving risk is authorized under the
Internal Revenue Code (Code), and whether the approach would
create opportunities for manipulation.

Therefore, the proposed

regulations do not include the requested rule.
The IRS intends to issue guidance under section 475 of the
Code to coordinate the hedging exception of section 47S(b) (1) (C)
with these rules.

In particular, if a consolidated group has not

made a separate-entity election, the IRS is considering whether
the identification of a hedging transaction by a member subject
to section 475 should generally be sufficient to identify the
transaction as a hedge under section 475(b) (1) (C), provided the
hedged item or items are not securities subject to section

- 11 475(a).

In this case, galn or loss on the hedging transaction

would generally be subject to the timing rules of §1.446-4 rather
than to mark-to-market treatment under section 475.

Comments are

requested on this matter.
special Analyses
It has been determined that this notice of proposed
rulemaking is not a significant regulatory action as defined in
EO 12866.

Therefore, a regulatory assessment is not required.

It also has been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C. chapter 5) and the
Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to
these regulations, and, therefore, a Regulatory Flexibility
Analysis is not required.

Pursuant to section 7805(f) of the

Internal Revenue Code, this notice of proposed rulemaking will be
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on its impact on small business.
Comments and Public Hearing
Before these proposed regulations are adopted as final
regulations, consideration will be given to any written comments
(a signed original and eight (8) copies) that are submitted
timely to the IRS.

All comments will be available for public

inspection and copying.
A public hearing has been scheduled for Tuesday, October 18,
1994, at 10:00 a.m. in room 3718, 1111 Constitution Avenue, NW,
Washington, DC, 20224.

Because of access restrictions, visitors

will not be admitted beyond the Internal Revenue Building lobby
more than 15 minutes before the hearing starts.

- 12 The rules of 26 CFR 601.601(a) (3) apply to the hearing.
Persons that wish to present oral comments at the hearing
must submit written comments by September 26, 1994, and submit an
outline of the topics to be discussed and the time to be devoted
to each topic (signed original and eight (8) copies) by
September 26, 1994.
A period of 10 minutes will be allotted to each person for
making comments.

An agenda showing the scheduling of the speakers will be
prepared after the deadline for receiving outlines has passed.
Copies of the agenda will be available free of charge at the
hearing.
Drafting Information
The principal author of these regulations is Jo Lynn Ricks,
Office of Assistant Chief Counsel (Financial Institutions and
Products).

However, other personnel from the IRS and Treasury

Department participated in their development.

13 -

List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as
follows:
PART 1--INCOME TAXES
Paragraph 1.

The authority citation for part 1 is amended

by removing the entry for §1.1221-2 and by adding entries in
numerical order to read as follows:
Authority:

26 U.S.C. 7805

* * *

section 1.446-4 also issued under 26 U.S.C. 1502.

* * *

Section 1.1221-2 also issued under 26 U.S.C. 1502 and
6001.

* * *
Par. 2.

Section 1.446-4 is amended by adding the text of

paragraph (e) (9) to read as follows:
§1.446-4 Hedging transactions.

* * * * *
(e)

* * *

(9) Hedging by members of a consolidated group--(i) General
rule.

In general, a member of a consolidated group that hedges

the risk of another member must account for its hedging
transactions as if all of the members were separate divisions of
a single corporation.

Thus, the timing of the income, deduction,

gain, or loss on a hedging transaction must be matched with the
timing of income, deduction, gain, or loss from the item or items
being hedged rather than with an intercompany transaction.

- 14 -

(ii) Separate-entity election.

If a consolidated group

makes an election under §1.1221-2(d) (2), each member of the
consolidated group must account for its hedging transactions
(including its intercompany transactions that are treated as
hedging transactions) in a manner that meets the requirements of
paragraph (b) of this section.

Thus, each member of the group

must comply with this section for its hedging transactions
without regard to the fact that the taxpayer is a member of a
consolidated group.

(iii) Definitions.

For definitions of consolidated group,

member of a consolidated group, and intercompany transaction, see
section 1502 and the regulations thereunder.
(iv) Effective date.

This paragraph (e) (9) applies to

transactions entered into on or after the date 60 days after
publication of final regulations on this subject in the Federal
Register.

Par. 3. section 1221-2 is amended by adding the text of
paragraphs (d),

(e) (5),

(f) (3), and (g) (4) to read as follows:

§1.1221-2 Hedging transactions.

* * * * *
(d) Hedging by members of a consolidated group--(l) General
rule.

For purposes of this section, the risk of one member of a

consolidated group is treated as the risk of the other members as
if all of the members of the group were divisions of a single
corporation.

For example, if any member of a consolidated group

hedges the risk of another member of the group by entering into a
transaction with an unrelated person, that transaction may

15 -

potentially qualify as a hedging transaction.

Under this rule,

intercompany transactions are not hedging transactions because
they are treated as transactions between divisions of a single
corporation and thus do not reduce the risk ·of the group.
(2) Separate-entity election.

In lieu of the treatment

specified in paragraph (d) (1) of this section, a consolidated
group may elect separate-entity treatment of its hedges.

If a

group makes this separate-entity election, the following rules
apply.
(i) Risk of one member not risk of other members.
Notwithstanding paragraph (d) (1) of this section, the risk of one
member is not treated as the risk of other members.
(ii) Intercompany transactions.

An intercompany transaction

or obligation is a hedging transaction with respect to a member
of a consolidated group if and only if it meets the following
requirements-(A) The position of the member in the intercompany
transaction or obligation would qualify as a hedging transaction
with respect to that member if that member entered into the
transaction with an unrelated party; and
(B) The position of the other member (the marking member) in
the transaction is marked to market under the marking member's
method of accounting.
(iii) Treatment of intercompany hedging transactions.
intercompany transaction or obligation that is a hedging
transaction (because it meets the requirements of

16 -

paragraphs (d) (2) (ii) (A) and (B) of this section) is treated as
follows-(A) Neither the hedging transaction nor any intercompany
obligation with respect to that transaction is treated as an
intercompany transaction or obligation for purposes of section
1502 and the regulations thereunder; and
(B) Except as provided in paragraph (f) (3) of this section,
the character of the marking member's gain or loss from the
transaction is ordinary.
(iv) Making and revoking the election.

The election

described in this paragraph (d) (2) must be made in a separate
statement that is filed with the group's consolidated return for
the taxable year that includes the first date for which the
election is to apply.

The statement must specify that the

election is being made and must indicate the date that the
election is to be effective.

The election applies to all

transactions entered into on or after the date so indicated.

no event, however, does the election apply to transactions
entered into before the date 60 days after final regulations on
this subject are published in the Federal Register.

The election

cannot be revoked without the consent of the Commissioner.
(3) Definitions.

For definitions of consolidated group,

member of a consolidated group, intercompany transaction, and
intercompany obligation, see section 1502 and the regulations
thereunder.
(4) Examples. These examples illustrate this paragraph (d).
In these examples, 0 and H are members of the same consolidated
group. O's business operations give rise to interest rate risk
"A," which 0 wishes to hedge. Q enters into an intercompany

- 17 -

transaction with H that transfers the risk to H. Qls position in
the intercompany transaction is "IL" and HiS position in the
contract is "C." H enters into position "12" with a third party
to reduce the interest rate risk it has with respect to its
position c.
0 would be a hedging transaction with respect to
risk A if Qls risk A were HiS risk.
Example 1.
Single-entity treatment--(i) General rule.
Under paragraph (d) (1) of this section, Qls risk A is treated as
Hts risk, and therefore 0 is a hedging transaction with respect
to risk A.
Thus, the character of 0 is determined under the
rules of this section, and 0 must be accounted for under a method
of accounting that satisfies §1.446-4. The intercompany
transaction B-C is not a hedging transaction, and the B-C
transaction is accounted for according to the regulations under
section 1502.
(ii) Identification. 0 must be identified as a hedging
transaction under paragraph (e) (1) of this section, and A must be
identified as the hedged item under paragraph (e) (2) of this
section. Under paragraph (e) (5) of this section, the
identification of A as the hedged item can be accomplished by
identifying the positions in the intercompany transaction as
hedges or hedged items, as appropriate. Thus, substantially
contemporaneously with entering into 0, H may identify C as the
hedged item and Q may identify B as a hedge and A as the hedged
item.
Example 2.
Separate-entity election; no marking.
In
addition to the facts stated above, assume that the group makes a
separate-entity election under paragraph (d) (2) of this section.
If H does not mark ~ to market under its method of accounting,
then ~ is not a hedging transaction, and the B-C intercompany
transaction is accounted for under the rules of section 1502. ~
is not a hedging transaction with respect to A, but Q may be a
hedging transaction with respect to ~ if the requirements of
paragraph (b) of this section are met. If D is not part of a
hedging transaction, then ~ may be part of a straddle for
purposes of section 1092.
Example 3. Separate-entity election; marking. The facts
are the same as in Example 2 above.
If H marks C to market under
its method of accounting and ~ would be a hedging transaction
with respect to Q if 0 had entered into that transaction with an
unrelated party, then the B-C transaction is a hedging
transaction with respect to Q. Thus, Qls position ~ is a hedging
transaction with respect to its risk A, the B-C transaction is
not treated as an intercompany transaction or obligation, and His

18 -

income, deduction, gain or loss on C is ordinary. 0 is a hedge
of C if it meets the requirements of paragraph (b) of this
section.
(e)

* * *

(5) Identification of hedges involving members of the same
consolidated group--(i) General rule.

If one member of a

consolidated group hedges the risk of another member under the
general rule of paragraph (d) (1) of this section, then the
identification requirements of this paragraph (e) must be met as
if all of the members of the group were divisions of a single
corporation.

Thus, the member entering into the hedging

transaction with a third party must identify the hedging
transaction under paragraph (e) (1) of this section.

Under

paragraph (e) (2) of this section, that member must also identify
the item, items, or aggregate risk that is being hedged, even if
the item, items, or aggregate risk relates primarily or entirely
to other members of the group.

If the members of a group use

intercompany transactions or obligations to transfer risk within
the group, the requirements of paragraph (e) (2) of this section
may be met by identifying the intercompany transactions or
obligations as hedges or hedged items, as appropriate.

Because

identification of the intercompany transaction as a hedge serves
solely to identify the hedged item, the identification is timely
if made within the period required by paragraph (e) (2) of this
section.

For example, if a member transfers risk in an

intercompany transaction, it may identify under the rules of this
paragraph (e) both its position in that transaction and the item,
items, or aggregate risk being hedged.

The member that hedges

19 -

the risk outside the group may identify under the rules of this
paragraph (e) both its position with the third party and its
position in the intercompany transaction.

See paragraph (d) (4)

of this section for an example of this identification.
(ii) Rule for taxpayers making the separate-entity election.
If a consolidated group makes the separate-entity election under
paragraph (d) (2) of this section, each member of the group must
satisfy the requirements of this paragraph (e) as though it were
not a member of a consolidated group.

* * * * *
(f)

* * *

(3) Transactions by members of a consolidated group-(i) General rule.

If a consolidated group is under the general

rule of paragraph (d) (1) of this section, the rules of this
paragraph (f) apply only to hedging transactions and not to
intercompany transactions.
(ii) Separate-entity election.

If a consolidated group has

made the election under paragraph (d) (2) of this section, then,
in addition to the rules of paragraphs (f) (1) and (f) (2) of this
section, the following rules apply.
(A) If an intercompany transaction is identified as a
hedging transaction but does not meet the requirements of
paragraphs (d) (2) (ii) (A) and (B) of this section, then both
parties to the transaction are subject to the rules of
paragraph (f) (1) of this section with respect to the transaction
as though both had identified their positions in the transaction

- 20 as hedging transactions, notwithstanding the regulations under
section 1502.
(B) If a transaction that meets the requirements of
paragraphs (d) (2) (ii) (A) and (B) is not identified as a hedging
transaction, then both parties to the transaction are subject to
the rules of paragraph (f) (2) .
(g)

* * *

(4) Effective date for hedges by members of a consolidated
group.

Paragraphs (d),

(e) (5), and (f) (3) of this section apply

to transactions entered into on or after the date that is 60 days
after publication of final regulations in the Federal Reqister.

Margaret Milner Richardson
Commissioner of Internal Revenue

[4&30-01-u]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
[TD 8555]
RIN

1545-AR73

Hedging Transactions
AGENCY:

Internal Revenue Service (IRS), Treasury.

ACTION:

Final regulations.

SUMMARY:

This document contains final regulations clarifying the

character of gain or loss from business hedges.

In general, the

regulations treat gain or loss on most hedging transactions as
ordinary rather than capital.

The regulations are needed to

provide guidance to businesses entering into hedging transactions
and to serve as a basis for resolving pending cases involving
gains and losses from hedging.
DATES: These regulations are effective [INSERT DATE OF
PUBLICATION OF THIS DOCUMENT IN THE FEDERAL REGISTER], except
that the amendments relating to the removal of §1.1221-2T are
effective October 1, 1994.
For dates of applicability of these regulations, see the
discussion in the Dates of Applicability paragraph in the
Supplementary Information portion of the preamble.
FOR FURTHER INFORMATION CONTACT: Jo Lynn Ricks of the Office of
the Assistant Chief Counsel (Financial Institutions and
Products), Internal Revenue service, 1111 Constitution Avenue,
NW, Washington DC 20224 (Attn:

CC:DOM:FI&P).

202-622-3920 (not a toll-free call).

Telephone

- 2 -

SUPPLEMENTARY INFORMATION:
paperwork Reduction Act
The collection of information contained in these final
regulations has been reviewed and approved by the Office of
Management and Budget in accordance with the Paperwork Reduction
Act (44 U.S.C. 3504(h»

under control number 1545-1403.

The

estimated annual burden per recordkeeper varies from .1 to 10
hours, depending on individual circumstances, with an estimated
average of .9 hours.
comments concerning the accuracy of this burden estimate and
suggestions for reducing this burden should be sent to the
Internal Revenue service, Attn:

IRS Reports Clearance Officer,

PC:FP, Washington, DC 20224, and to the Office of Manaqement and
Budqet, Attn:

Desk Officer for the Department of the Treasury,

Office of Information and Regulatory Affairs, Washington, DC
20503.
Background
This document contains final regulations amending the Income
Tax Regulations (26 CFR part 1) under section 1221 of the
Internal Revenue Code (Code)
capital asset).

(relating to the definition of

The provisions affected relate to the

determination of the character of gain or loss from hedging
transactions.
On October 20, 1993, temporary regulations (TO 8493)
providing that gain or loss on most common business hedges is
ordinary rather than capital were published in the Federal
Register (58 FR 54037).

A notice of proposed rulemaking

3 -

(FI-46-93) cross-referencing the temporary regulations was
published in the Federal Register for the same day (58 FR 54075).
The regulations were intended to resolve questions that had
arisen with respect to the tax treatment of business hedging
following the decision of the United states Supreme Court in
Arkansas Best Corp. v. Commissioner, 485 U.S. 212 (1988).
Many comments were received on the proposed regulations, and
a public hearing was held on January 19, 1994.

Most commentators

supported the general approach of the proposed regulations, but a
number suggested specific revisions to the proposed rules or the
addition of rules to resolve remaining issues.
Explanation of provisions
Paragraph (a) of §1.1221-2 provides basic rules for the
treatment of hedging transactions.

Only minor, clarifying

changes have been made to the proposed regulations.
Paragraph (a) (1) provides that property that is part of a
hedging transaction, as defined in the regulations, is not a
capital asset.

Paragraph (a) (2) provides a similar rule for

short sales and options.

Where a short sale or option is part of

a hedging transaction, as defined, any gain or loss on the short
sale or option is ordinary.

Final regulations under sections

1233 and 1234 provide that §1.1221-2 governs the character of
gain or loss on short sales and options that are part of hedging
transactions.
Under paragraph (a) (3), if a transaction falls outside the
regulations, gain or loss from the transaction is not made
ordinary by the fact that property is a surrogate for a non-

4 -

capital asset, that the transaction serves as insurance against a
business risk, that the transaction serves a hedging function, or
that the transaction serves a similar function or purpose.
The provisions of this section generally apply to determine
the character of gain or loss from transactions that also are
subject to various international provisions of the Code.
Paragraph (a) (4), however, provides that section 988 transactions
are excluded from the character provisions of these regulations
because gain or loss on those transactions is ordinary under
section 988(a) (1).

The regulations do apply to transactions that

predate the effective date of section 988.

Paragraph (a) (4) also

provides that the definition of a hedging transaction under
Sl.122l-2(b) does not apply for purposes of the hedging
exceptions to the subpart F rules of section 954(c) and certain
hedging rules in the interest allocation regulations under
section 864(e).

The IRS and Treasury are considering the

possibility of using the definition of hedging transaction and
other provisions of these regulations for purposes of various
international tax provisions, except where a modification of the
provisions is necessary to carry out the purposes of those
international provisions.

Comments on this subject are welcomed.

In defining the term hedging transaction, paragraph (b) of
§1.122l-2 retains the rule of the proposed regulations and adopts
the concept of hedging in section l256(e) (2) (A) of the Code.
Under this rule, a hedging transaction generally is a transaction
that a taxpayer enters into in the normal course of its business

- 5 -

primarily to reduce the risk of interest rate or price changes or
currency fluctuations.
A number of commentators suggested that the IRS abandon the
rule of the proposed regulations and adopt a definition of
hedging that looks to risk management rather than risk reduction.
This comment was not adopted because the IRS and Treasury believe
that the definition in section 1256 represents the best
indication of congressional intent with respect to business
hedges.

Although the risk reduction standard has been retained,

the final regulations provide rules of application designed to
ensure that the definition of hedging transaction is applied
reasonably to include most common types of hedging transactions.
Paragraph (c) (1) deals with the meaning of risk reduction.
To enter into a hedging transaction, the taxpayer must have risk
when all of its operations are considered -- that is, there must
be risk on a "macro" basis.

Nonetheless, a hedge of a single

asset or liability, or pool of assets or liabilities, will be
respected if the hedge reduces the risk attributable to the item
or items being hedged and if the hedge is reasonably calculated
to reduce the overall risk of the taxpayer's operations.

addition, if a taxpayer hedges a particular asset or liability,
or a pool of assets or liabilities, and the hedge is undertaken
as part of a program to reduce the overall risk of the taxpayer's
operations, the taxpayer need not show that the hedge reduces its
overall risk.
Paragraph (c) (1) also recognizes that fixed to floating
hedges and certain types of written options may be risk reducing

6 -

and may be used in hedging transactions.

For example, a covered

call with respect to assets held or a written put option with
respect to assets to be acquired may reduce risk.
In addition, paragraph (c) (1) provides that a hedging
transaction includes a transaction that is entered into primarily
to reverse or counteract a hedging transaction.

This rule

recognizes that some transactions are used to eliminate some or
all of the risk reduction accomplished through a hedging
transaction.

Although the transactions are not risk reducing if

viewed independently, they are considered to be part of the
larger hedging transaction.
Paragraph (c) (1) further provides that a taxpayer may hedge
any part or all of its risk for any part of the period during
which it has risk.

The regulations also provide that the

frequent entering into and termination of hedging positions is
not relevant to whether transactions are hedging transactions.
Finally, paragraph (c) (1) provides that a transaction that
is not entered into primarily to reduce risk is not a hedging
transaction.

For example, the so-called "store-on-the-board"

transaction, in which a taxpayer disposes of its production and
enters into a long futures or forward contract, is not a hedging
transaction because the long position does not reduce risk.
Moreover, gain or loss on the contract is not made ordinary on
the grounds that it is a surrogate for inventory.
The IRS and Treasury understand that there are situations in
which a taxpayer engages in a store-on-the-board

transaction as

a hedge of an expected payment under an agricultural price

- 7 -

support program.

In this situation, a long futures or forward

contract may qualify as a hedging transaction with respect to the
expected payment.
Paragraph (c) (2) provides that a hedging transaction may be
entered into by using a position that was a hedge of one asset or
liability to hedge another asset or liability.
Paragraph (c) (3) provides that the acquisition of certain
assets, such as investments, may not be a hedging transaction.
Even though these assets may reduce risk, they typically are not
acquired primarily to reduce risk.

For example, a taxpayerrs

interest rate risk from a floating rate borrowing may be reduced
by the purchase of debt instruments that bear a comparable
floating rate.

The acquisition of the debt instruments, however,

is not made primarily to reduce risk and, therefore, is not a
hedging transaction.

similarly, borrowings generally are not

made primarily to reduce risk.
paragraph (c) (4) defines the normal course requirement of
paragraph (b) to include any transaction entered into in
furtherance of a taxpayerrs trade or business.

Thus, for

example, a liability hedge meets this requirement regardless of
whether the liability is undertaken to fund current operations,
an acquisition, or an expansion of a taxpayerrs business.

This

definition does not apply to other uses of the term "normal
course" in the Code or regulations.
Paragraph (c) (5) retains the rule in the proposed
regulations that a hedge of property or of an obligation is a
hedging transaction only if a sale or exchange of the property,

8 -

or performance or termination of the obligation, could not
produce capital gain or loss.

In response to the many comments

received, however, a special rule has been added for noninventory
supplies.

Under this rule, if a taxpayer sells only a negligible

amount of a non inventory supply, then, only for purposes of
determining whether a hedge of the purchase of that non inventory
supply is a hedging transaction, the non inventory supply is
treated as ordinary property.

In this case, the Service and

Treasury believe that the theoretical possibility of ordinary
loss on a hedge and capital gain on the sale of supplies should
not prevent the transactions from qualifying as hedging
transactions.

The Service intends to issue guidance on the

negligible amount standard.

The comments received indicate that

most taxpayers sell none of their supplies or a very small
amount.

Further comments are requested.

For prior years, a transition rule provides a substantially
more generous standard for non inventory supplies.

If, in each

prior year that is open for assessment on September 1, 1994, a
taxpayer sold no more than 15 percent of the greater of the total
amount of a supply held at the beginning of the year or the total
amount of the supply acquired in that year and meets certain
other requirements, hedges of purchases of that supply are
hedging transactions.
The final regulations do not provide a negligible sales
rule for hedges of section 1231 assets.

Sales of these assets

are less predictable than sales of supplies and may occur many
years after the transaction that hedges their purchase.

The IRS

9 -

and Treasury believe that it is inappropriate to provide ordinary
treatment for the hedges when it is not known whether the assets
will produce capital gains.

Nonetheless, the regulations provide

a special transition rule applicable to certain hedges of section
1231 assets entered into in prior years.
Paragraph (c) (6) provides that the status of liability
hedges as hedging transactions is determined without regard to
the use that is made of the proceeds of a borrowing.

The IRS and

Treasury believe that a liability hedge should not fail to
qualify as a hedging transaction because the proceeds of the
borrowing being hedged are used to purchase a capital asset.
Paragraph (c) (7) retains the rule in the proposed
regulations that, in the case of hedges of aggregate risk, all
but a de minimis amount of the risk being hedged must be
attributable to ordinary property, ordinary obligations, and
borrowings.
Although the purpose of the rules in paragraph (c) is to
ensure that the definition of hedging transaction will be
interpreted reasonably to cover most common business hedges, not
all hedges are intended to be covered.

For example, the

regulations do not apply where a taxpayer hedges a dividend
stream, the overall profitability of a business unit, or other
business risks that do not relate directly to interest rate or
price changes or currency fluctuations.

Moreover, the

regulations do not provide ordinary treatment for gain or loss
from the disposition of stock where, for example, the stock is

- 10 -

acquired to protect the goodwill or business reputation of the
acquirer or to ensure the availability of goods.
The status of so-called "gap" hedges is not separately
addressed in paragraph (c).

Insurance companies, for example,

sometimes hedge the "gap" between their liabilities and the
assets that fund them.

Under the proposed regulations, a hedge

of those assets does not qualify as a hedging transaction if the
assets are capital.

Commentators, therefore, suggested that the

final regulations provide a rule that deems all gap hedges to be
hedges of the liabilities rather than of the assets.

The IRS and

Treasury, however, are concerned that, where this type of hedge
is more closely associated with the assets than the liabilities,
there is a significant possibility of mismatch if the hedges are
given ordinary treatment and the assets can be sold for capital
gains.

Thus, the final regulations do not include the suggested

rule.
Whether a gap hedge qualifies as a liability hedge is a
question of fact and depends on whether it is more closely
associated with the liabilities than with the assets.

For

example, a contract to purchase assets is generally not a
liability hedge even if the assets are being purchased to fund
the liability.

other gap hedges may be appropriately treated as

liability hedges and, therefore, may qualify as hedging
transactions.
The IRS and Treasury understand that the most significant
consequence of the failure of gap hedges to qualify as hedging
transactions may be that they are then subject to the straddle

- 11 rules of section 1092.

Comments are requested on whether it

would be appropriate to exempt these transactions from section
1092 and apply the hedge accounting rules of §1.446-4 even though
the transactions are not hedging transactions and their character
is not determined under §1.1221-2.

The IRS and Treasury also

note that there may be different considerations for determining
whether income or loss from a gap hedge should be treated as an
interest equivalent for purposes of international tax provisions,
such as section 864(e).

Comments are also requested on this

point.
Paragraph (d) is reserved in the final regulations to allow
development of rules applicable to hedging by members of a
consolidated group.

Proposed regulations on this subject are

published in the Proposed Rules section of this issue of the
Federal Register.
Paragraph (e) (1) retains the requirement of the proposed
regulations that hedging transactions must be identified before
the close of the day on which they are entered into.

Paragraph

(e) (2), however, relaxes the rule of the proposed regulations and
requires that the item, items, or aggregate risk being hedged be
identified substantially contemporaneously with entering into the
hedging transaction.

The identification must be made no more

than 35 days after entering into the hedging transaction.

This

time period should make it possible for taxpayers to identify the
hedged item, items, or aggregate risk at the time they prepare
monthly reports for nontax purposes.

- 12 -

Some commentators suggested eliminating entirely the
requirement of identifying the item being hedged.

The Service

and Treasury believe, however, that this identification is needed
to establish that the definition of hedging transaction is
satisfied.

Moreover, because special identification rules have

been provided for hedges of aggregate risk and certain inventory
hedges, the requirement of identifying the items being hedged
should not be overly burdensome.
A transition rule is provided to extend the time period for
identifying a transaction that is a hedging transaction under the
final regulations and that the taxpayer reasonably treated as
other than a hedging transaction under the proposed regulations.
If such a transaction was entered into before October 1, 1994,
and remains in existence on that date, the identification and
recordkeeping requirements of paragraph (e) apply, except that
the identification of both the hedging transaction and the hedged
item are timely if made before the close of business on
October 1, 1994.

However, if the transaction was entered into

before October 1, 1994, and does not remain in existence on that
date, the identification and recordkeeping requirements of
paragraph (e) do not apply.
paragraph (e) (3) contains a series of special rules for
identifying certain types of hedging transactions.

In the case

of inventory, the identification must specify the type or class
of inventory to which the hedge relates.

If particular inventory

purchases or sales transactions are being hedged, the taxpayer
must also identify the expected dates and the amounts to be

acquired or sold.

13 -

In the case of hedges of aggregate risk, the

identification requirement is satisfied if a taxpayer's records
contain a description of the hedging program and if the taxpayer
establishes a system under which transactions are identified as
being entered into as part of that program.

The intent

underlying this rule is to provide verifiable information with
respect to the item being hedged without requiring the taxpayer
to identify individually the many items that give rise to the
aggregate risk being hedged.
Paragraph (e) (4) generally retains and expands the rules of
the proposed regulations with respect to how an identification is
made.

It must be clear that the identification is being made for

tax purposes.

In lieu of separately identifying each

transaction, however, a taxpayer may establish a system in which
identification is indicated by the type of transaction or the
manner in which the transaction is consummated or recorded.
Paragraph (e) (5) is reserved to deal with the required
identification where the taxpayer is a member of a consolidated
group, and paragraph (e) (6) provides that an identification for
purposes of section 1256(e) (2) (C)

is also an identification for

purposes of §1.1221-2(e) (1).
Paragraph (f) deals with the effect of identification and
non-identification and provides rules that generally are
unchanged from the proposed regulations.

The only significant

change is the addition of a rule that allows correction of an
inadvertent identification in some circumstances.

If the

correction is allowed, the transaction is not subject to the

- 14 ordinary-gain, capital-loss rule that generally applies to
transactions that are incorrectly identified as hedging
transactions.
Final regulations under section 1256 retain the rules of the
proposed regulations that coordinate the identification of hedges
for purposes of section 1256(e).

In addition, the regulations

provide that, if a taxpayer inadvertently identifies a
transaction as a hedging transaction and corrects it in
accordance with paragraph (f) (1) (ii) of §1.1221-2, the
transaction is treated as if it were not identified as a hedging
transaction for purposes of section 1256(e) (2) (C).

Thus, section

1256(f) (1) does not impose ordinary-gain, capital-loss treatment
on the transaction.
Dates of Applicability
Except for the identification rules of paragraph (e), which
apply to transactions that were entered into on or after
January 1, 1994, or were entered into before that date and
remained in existence on March 31, 1994, these final regulations
generally apply to all open taxable years.

Taxpayers may,

however, rely on any paragraph in §1.1221-2T (26 CFR part 1
revised as of April 1, 1994), for transactions entered into prior
to October 1, 1994, provided that the taxpayer applies the
paragraph reasonably and consistently.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866.
a regulatory assessment is not required.

Therefore,

It also has been

- 15 determined that section 553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) and the Regulatory Flexibility Act
(5 U.S.C. chapter 6) do not apply to these regulations, and,
therefore, a Regulatory Flexibility Analysis is not required.
pursuant to section 7805(f) of the Internal Revenue Code, the
notice of proposed rulemaking preceding these regulations was
submitted to the Small Business Administration for comment on its
impact on small business.
Drafting Information
The principal author of these regulations is Jo Lynn Ricks,
Office of Assistant Chief Counsel (Financial Institutions and
Products).

However, other personnel from the IRS and Treasury

Department participated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602 are amended as follows:
PART 1--INCOME TAXES
Paragraph 1.

Effective (INSERT DATE OF PUBLICATION OF THIS

DOCUMENT IN THE FEDERAL REGISTER] the authority citation for part
1 is amended by adding an entry in numerical order to read as
follows:
Authority:

26 U.S.C. 7805

* * *

Section 1.1221-2 also issued under 26 U.S.C. 6001.

* * *

16 -

Par. 2. Effective October 1, 1994, the authority citation is
further amended by removing the entry for §1.1221-2T.
Par. 3.

Effective [INSERT DATE THIS DOCUMENT IS PUBLISHED

IN THE FEDERAL REGISTER] §1.1221-2 is added to read as follows:

§1.1221-2 Hedging transactions.
(a) Treatment of hedging transactions--(1) In general.

This

section governs the treatment of hedging transactions under
section 1221.

Except as provided in paragraph (f) (2) of this

section (and notwithstanding the provisions of §1.1221-1(a», the
term capital asset does not include property that is part of a
hedging transaction (as defined in paragraph (b) of this
section).
(2) Short sales and options.

This section also governs the

character of gain or loss from a short sale or option that is
part of a hedging transaction.

See §§1.1233-2 and 1.1234-4.

Except as provided in paragraph (f) (2) of this section, gain or
loss on a short sale or option that is part of a hedging
transaction (as defined in paragraph (b) of this section) is
ordinary income or loss.
(3) Exclusivity.

If a transaction is not a hedging

transaction as defined in paragraph (b) of this section, gain or
loss from the transaction is not made ordinary on the grounds
that property involved in the transaction is a surrogate for a
noncapital asset, that the transaction serves as insurance
against a business risk, that the transaction serves a hedging
function, or that the transaction serves a similar function or
purpose.

- 17 -

(4) Coordination with other sections--(i) section 988.

This

section does not apply to determine the character of gain or loss
realized on a section 988 transaction as defined in section
988{c) (1) or realized with respect to a qualified fund as defined
in section 988(c) (1) (E) (iii).

This section does apply, however,

to transactions or payments that would be subject to section 988
but for the date that the transactions were entered into or the
date that the payments were made.
(ii) Sections 864(e) and 954(c).

Except as otherwise

provided in regulations issued pursuant to sections 864(e) and
954(c), the definition of hedging transaction in paragraph (b) of
this section does not apply for purposes of section 864(e) and
954 (c) •
(b) Hedging transaction defined.

A hedging transaction is a

transaction that a taxpayer enters into in the normal course of
the taxpayer's trade or business primarily-(1) To reduce risk of price changes or currency fluctuations
with respect to ordinary property (as defined in paragraph (c) (5)
of this section) that is held or to be held by the taxpayer; or
(2) To reduce risk of interest rate or price changes or
currency fluctuations with respect to borrowings made or to be
made, or ordinary obligations incurred or to be incurred, by the
taxpayer.
(c) Rules of application.

The rules of this paragraph (c)

apply for purposes of the definition of the term hedging
transaction in paragraph (b) of this section.

These rules must

be interpreted reasonably and consistently with the purposes of

- 18 -

this section.

Where no specific rules of application control,

the definition of hedging transaction must be interpreted
reasonably and consistently with the purposes of this section.
(1) Reducing risk--(i) Transactions that reduce risk.
Whether a transaction reduces a taxpayer's risk is determined
based on all of the facts and circumstances surrounding the
taxpayer's business and the transaction.

In general, a

taxpayer's hedging strategies and policies as reflected in the
taxpayer's minutes or other records are evidence of whether
particular transactions reduce the taxpayer's risk.

(ii) Micro and macro hedges--(A) In general.

A taxpayer has

risk of a particular type only if it is at risk when all of its
operations are considered.

Nonetheless, a hedge of a particular

asset or liability generally will be respected as reducing risk
if it reduces the risk attributable to the asset or liability and
if it is reasonably expected to reduce the overall risk of the
taxpayer's operations.

If a taxpayer hedges particular assets or

liabilities, or groups of assets or liabilities, and the hedges
are undertaken as part of a program that, as a whole, is
reasonably expected to reduce the overall risk of the taxpayer's
operations, the taxpayer generally does not have to demonstrate
that each hedge that was entered into pursuant to the program
reduces its overall risk.
(B) Fixed-to-floating hedges.

Under the principles of

paragraph (c) (1) (ii) (A) of this section, a transaction that
economically converts an interest rate or price from a fixed
price or rate to a floating price or rate may reduce risk.

For

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example, if a taxpayer's income varies with interest rates, the
taxpayer may be at risk if it has a fixed rate liability.
Similarly, a taxpayer with a fixed cost for its inventory may be
at risk if the price at which the inventory can be sold varies
with a particular factor.

Thus, a transaction that converts an

interest rate or price from fixed to floating may be a hedging
transaction.

(iii) Written options.

A written option may reduce risk.

For example, in appropriate circumstances, a written call option
with respect to assets held by a taxpayer or a written put option
with respect to assets to be acquired by a taxpayer may be a
hedging transaction.