    [Analytical Perspectives]
    [Other Technical Presentations]
    [20. Off-Budget Federal Entities and Non-Budgetary Activities]
    [From the U.S. Government Publishing Office, www.gpo.gov]

    [[Page 383]]

          20. OFF-BUDGET FEDERAL ENTITIES AND NON-BUDGETARY ACTIVITIES

      The unified budget of the Federal Government is divided by law between
    on-budget and off-budget entities. The off-budget Federal entities
    conduct programs that result in the same kind of spending and receipts
    as on-budget entities. Despite their off-budget classification, these
    programs channel economic resources toward particular uses in the same
    way as on-budget spending. They are discussed in the following section
    on off-budget Federal entities.
      The budget does not include activities that are related to the Federal
    Government but that are non-budgetary by their inherent nature. In some
    cases this is because they are not activities of the Government itself,
    and in other cases this is because the transactions are not costs to the
    Government. Nevertheless, many of these activities are discussed in the
    budget documents, and in some cases the amounts involved are presented
    in conjunction with budget data. They are discussed in the section of
    this chapter on non-budgetary activities.

                                          TABLE 20-1.  COMPARISON OF TOTAL, ON-BUDGET, AND OFF-BUDGET TRANSACTIONS \1\
                                                                    (In billions of dollars)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     Receipts                        Outlays                    Surplus or deficit (-)
                                                         ---------------------------------------------------------------------------------------------------
                         Fiscal Year                                             Off-                             Off-                                Off-
                                                           Total   On-budget    budget     Total    On-budget    budget     Total      On-budget     budget
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    1975................................................    279.1      216.6       62.5      332.3      271.9       60.4      -53.2         -55.3        2.0
    1976................................................    298.1      231.7       66.4      371.8      302.2       69.6      -73.7         -70.5       -3.2
    TQ..................................................     81.2       63.2       18.0       96.0       76.6       19.4      -14.7         -13.3       -1.4
    1977................................................    355.6      278.7       76.8      409.2      328.5       80.7      -53.7         -49.8       -3.9
    1978................................................    399.6      314.2       85.4      458.7      369.1       89.7      -59.2         -54.9       -4.3
    1979................................................    463.3      365.3       98.0      504.0      404.1      100.0      -40.7         -38.7       -2.0

    1980................................................    517.1      403.9      113.2      590.9      476.6      114.3      -73.8         -72.7       -1.1
    1981................................................    599.3      469.1      130.2      678.2      543.1      135.2      -79.0         -74.0       -5.0
    1982................................................    617.8      474.3      143.5      745.8      594.4      151.4     -128.0        -120.1       -7.9
    1983................................................    600.6      453.2      147.3      808.4      661.3      147.1     -207.8        -208.0        0.2
    1984................................................    666.5      500.4      166.1      851.9      686.1      165.8     -185.4        -185.7        0.3

    1985................................................    734.1      547.9      186.2      946.4      769.6      176.8     -212.3        -221.7        9.4
    1986................................................    769.2      569.0      200.2      990.5      807.0      183.5     -221.2        -238.0       16.7
    1987................................................    854.4      641.0      213.4     1004.1      810.3      193.8     -149.8        -169.3       19.6
    1988................................................    909.3      667.8      241.5     1064.5      861.8      202.7     -155.2        -194.0       38.8
    1989................................................    991.2      727.5      263.7     1143.7      932.8      210.9     -152.5        -205.2       52.8

    1990................................................   1032.0      750.3      281.7     1253.2     1028.1      225.1     -221.2        -277.8       56.6
    1991................................................   1055.0      761.2      293.9     1324.4     1082.7      241.7     -269.4        -321.6       52.2
    1992................................................   1091.3      788.9      302.4     1381.7     1129.3      252.3     -290.4        -340.5       50.1
    1993................................................   1154.4      842.5      311.9     1409.5     1142.9      266.6     -255.1        -300.5       45.3
    1994................................................   1258.6      923.6      335.0     1461.9     1182.5      279.4     -203.3        -258.9       55.7

    1995................................................   1351.8     1000.8      351.1     1515.8     1227.2      288.7     -164.0        -226.4       62.4
    1996................................................   1453.1     1085.6      367.5     1560.6     1259.7      300.9     -107.5        -174.1       66.6
    1997................................................   1579.3     1187.3      392.0     1601.3     1290.7      310.6      -22.0        -103.4       81.4
    1998................................................   1721.8     1306.0      415.8     1652.6     1336.0      316.6       69.2         -30.0       99.2
    1999................................................   1827.5     1383.0      444.5     1701.9     1381.2      320.8      125.5           1.8      123.7

    2000................................................   2025.2     1544.6      480.6     1788.8     1458.1      330.8      236.4          86.6      149.8
    2001................................................   1991.0     1483.5      507.5     1863.9     1516.9      347.0      127.1         -33.4      160.5
    2002 estimate.......................................   1946.1     1428.9      517.2     2052.3     1690.6      361.7     -106.2        -261.7      155.5
    2003 estimate.......................................   2048.1     1502.7      545.3     2128.2     1761.5      366.8      -80.2        -258.8      178.6
    2004 estimate.......................................   2175.4     1601.9      573.5     2189.1     1810.1      379.0      -13.7        -208.3      194.5

    2005 estimate.......................................   2338.0     1729.8      608.2     2276.9     1885.5      391.4       61.1        -155.6      216.8
    2006 estimate.......................................   2455.3     1821.6      633.7     2369.1     1963.4      405.7       86.2        -141.8      228.0
    2007 estimate.......................................   2571.7     1906.4      665.3     2467.7     2045.8      421.9      104.0        -139.4      243.4
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    \1\ Off-budget transactions consist of the social security trust funds for all years and the Postal Service fund as of 1989.

    [[Page 384]]

                           Off-Budget Federal Entities

      The Federal Government has used the unified budget concept as the
    foundation for its budgetary analysis and presentation since the 1969
    budget. This concept was developed by the President's Commission on
    Budget Concepts in 1967. It calls for the budget to include all the
    Federal Government's programs and all the fiscal transactions of these
    programs with the public.
      Every year since 1971, however, at least one Federal entity has been
    off-budget. Off-budget Federal entities are federally owned and
    controlled, but their transactions are excluded from the on-budget
    totals by law. When a Federal entity is off-budget, its receipts,
    outlays, and surplus or deficit are not included in the on-budget
    receipts, outlays, and surplus or deficit; and its budget authority is
    not included in the totals of budget authority for the on-budget Federal
    entities. The Budget Enforcement Act of 1990 excludes off-budget
    entities from general enforcement provisions (except for the
    administrative expenses of Social Security), although it has special
    enforcement provisions for Social Security.
      The off-budget Federal entities conduct programs of the same type as
    the on-budget entities. Most of the tables in the budget documents
    include the on-budget and off-budget amounts both separately and in
    combination, or add them together, in order to arrive at the unified
    budget totals that show Federal outlays and receipts comprehensively.
      The off-budget Federal entities currently consist of the two Social
    Security trust funds, old-age and survivors insurance and disability
    insurance, and the Postal Service fund. Social Security was removed from
    the budget as of 1986 and the Postal Service fund in 1989. A number of
    other entities were off-budget at different times before 1986 but were
    moved onto the budget by law in 1985 or earlier.
      The preceding table divides the total Federal Government receipts,
    outlays, and surplus or deficit between the on-budget and off-budget
    amounts. Within this table Social Security is classified as off-budget
    for all years, in order to provide consistent comparison over time. The
    much smaller Postal Service transactions are classified as off-budget
    starting in 1989. Entities that were off-budget at one time but are now
    on-budget are classified as on-budget for all years.
      The off-budget entities are a significant part of total spending and
    receipts. In 2003, the off-budget receipts are an estimated 27 percent
    of total receipts, and the off-budget outlays are a moderately smaller
    percentage of the total. The unified budget deficit in that year is $80
    billion--a $259 billion on-budget deficit partly offset by a $179
    billion off-budget surplus. The off-budget surplus is virtually the same
    as the Social Security surplus. Social Security had a deficit in the
    latter 1970s and early 1980s, but since the middle 1980s it has had a
    large and growing surplus. This surplus is expected to continue to grow
    by large amounts throughout the projection period. While the on-budget
    deficit is estimated to be larger than the off-budget surplus in 2002
    and 2003 due to the recession and the response to the terrorist attacks,
    the unified budget for the Government as a whole is estimated to return
    to surplus in 2004 or 2005.

                            Non-Budgetary Activities

      Federal credit: budgetary and non-budgetary transactions.--The Federal
    Credit Reform Act of 1990 refined budget concepts by distinguishing
    between the costs of credit programs, which are budgetary in nature, and
    the other transactions of credit programs, which are not. For 1992 and
    subsequent years, the costs of direct loans and loan guarantees are
    calculated as the present value of estimated cash outflows from the
    Government less the present value of estimated cash inflows to the
    Government. These costs are equivalent to the outlays of other Federal
    programs and are included in the budget as outlays of credit program
    accounts when the Federal Government makes a direct loan or guarantees a
    private loan.
      The complete cash transactions with the public--the disbursement and
    repayment of loans, the payment of default claims on guarantees, the
    collection of interest and fees, and so forth--are recorded in separate
    financing accounts. The financing accounts also include, as an
    offsetting collection, an amount equal to the outlays of the credit
    program accounts for the costs of direct loans and loan guarantees. The
    net transactions of the financing accounts--i.e., the cash transactions
    with the public net of these offsetting collections--are not costs to
    the Government. Therefore, the net transactions of the financing
    accounts are non-budgetary in concept, and the Act excludes them from
    the budget. \1\ Because the financing accounts are non-budgetary in
    concept, they are not classified as off-budget Federal entities.
    ---------------------------------------------------------------------------
      \1\ See sec. 505(b).
    ---------------------------------------------------------------------------
      The budget outlays of credit programs thus reflect only the cost of
    Government credit decisions, and they reflect this cost when the Federal
    credit assistance is provided. This enables the budget to fulfill better
    its purpose of being a financial plan for allocating resources among
    alternative uses: comparing the cost of a program with its benefits,
    comparing the cost of credit programs with the cost of other spending
    programs, and comparing the cost of one type of credit assistance with
    the cost of another type. Because the financing accounts do affect the
    Government's cash position, they change the amount of the Government's
    debt repayment or borrowing requirement as explained in chapter 13 of
    this volume, ``Federal Borrowing and Debt.'' \2\
    ---------------------------------------------------------------------------
      \2\ For more explanation of the budget concepts for direct loans and
    loan guarantees, see the sections on Federal credit and credit financing
    accounts in chapter 25 of this volume, ``Budget System and Concepts and
    Glossary.'' The structure of credit reform is further explained in
    chapter VIII.A of the Budget, Fiscal Year 1992, Part Two, pp. 223-26.
    The implementation of credit reform through 1995 is reviewed in chapter
    8, ``Underwriting Federal Credit and Insurance,'' Analytical
    Perspectives, Budget of the United States Government, Fiscal Year 1997,
    pp. 142-44. Refinements and simplifications enacted by the Balanced
    Budget Act of 1997 or provided by later OMB guidance are explained
    briefly in chapter 8, ``Underwriting Federal Credit and Insurance,''
    Analytical Perspectives, Budget of the United States Government, Fiscal
    Year 1999, p. 170.
    ---------------------------------------------------------------------------
      Credit programs are discussed in chapter 9 of this volume, ``Federal
    Credit and Insurance.''

    [[Page 385]]

      Premiums and discounts on debt buybacks.--The Treasury Department has
    been buying back outstanding bonds as part of its efforts to manage the
    debt held by the public. The premiums on debt buybacks are recorded
    outside the budget totals as a ``financing other than the change in debt
    held by the public.'' The concept is explained in a section of chapter
    25, ``Budget System and Concepts and Glossary.'' Buyback premiums are
    discussed further in chapter 13 of this volume, ``Federal Borrowing and
    Debt,'' and their actual or estimated amounts are shown for 2001 and
    2002.
      Deposit funds.--Deposit funds are non-budgetary accounts that record
    amounts held by the Government temporarily until ownership is determined
    (such as earnest money paid by bidders for mineral leases) or held by
    the Government as an agent for others (such as State income taxes
    withheld from Federal employees' salaries and not yet paid to the
    States). The largest deposit fund is the Thrift Savings Fund, which
    holds stocks and bonds for Federal employees who participate in the
    Thrift Savings Plan, a defined contribution retirement plan. Because
    these assets are the property of the employees and are held by the
    Government in a fiduciary capacity, the transactions of the fund are not
    transactions of the Government itself and therefore are non-budgetary in
    concept. The administrative costs and the transactions of budgetary
    accounts with the fund are included in the budget. For similar reasons,
    the budget excludes funds that are owned by Indian tribes and held and
    managed by the Government in a fiduciary capacity on the tribes' behalf.
    Deposit funds as such are further discussed in a section of chapter 25
    of this volume, ``Budget System and Concepts and Glossary.''
      Taxation and tax expenditures.--Taxation provides the Government with
    income, which is included in the budget as ``receipts,'' and which
    withdraws purchasing power from the private sector to finance Government
    expenditure. In addition to this primary economic effect, taxation has
    important effects on the allocation of resources among private uses and
    the distribution of income among individuals. These effects depend on
    the composition of the Federal tax system and the rates and other
    structural characteristics of each Federal tax. The latter effects of
    taxation on resource allocation and income distribution are analogous to
    the effects of outlays, but they are not recorded as outlays nor are
    they measured by receipts.
      Some of the latter effects of taxes on resource allocation and income
    distribution, but not all, arise from revenue losses caused by special
    exclusions, exemptions, deductions, and similar provisions that are
    identified by comparing the tax law with a baseline. Revenue losses
    caused by these special provisions are defined as ``tax expenditures''
    and are discussed in chapter 6 of this volume, ``Tax Expenditures.'' The
    chapter includes tables with estimates for all tax expenditures arising
    from individual and corporation income taxes.
      The specification of a baseline is essential in defining and
    calculating tax expenditures. A ``normal tax'' baseline is currently
    used to identify most of the tax expenditures listed in chapter 6.
    However, this baseline, although partly patterned on a comprehensive
    income tax, is somewhat subjective, which makes it controversial and
    open to question in a number of respects. The Treasury Department has
    begun to consider a number of ways to improve the traditional tax
    expenditure presentation. They plan to focus on three aspects: using a
    comprehensive income tax as a baseline concept, identifying as
    ``negative'' tax expenditures those tax receipts that would not be paid
    under the baseline income tax, and using a hypothetical consumption tax
    as an alternative baseline in addition to the comprehensive income tax.

      Government-sponsored enterprises.--The Federal Government has
    established a number of Government-sponsored enterprises, such as the
    Federal National Mortgage Association and the Farm Credit Banks, to
    provide financial intermediation for specified public purposes. They are
    excluded from the budget because they are privately owned and
    controlled. However, primarily because they were established by the
    Federal Government for public-policy purposes, estimates of their
    activities are reported in a separate chapter of the budget Appendix,
    their activities are analyzed in chapter 9 of this volume, ``Credit and
    Insurance,'' and their lending and borrowing are summarized in tables 9-
    11 and 9-12 of that chapter.
      Regulation.--Some types of regulation have economic effects that are
    similar to budget outlays by requiring the private sector to make
    expenditures for specified purposes, such as safety and pollution
    control. The regulatory planning process is described annually in The
    Regulatory Plan and the Unified Agenda of Federal Regulatory and
    Deregulatory Actions. \3\
    ---------------------------------------------------------------------------
      \3\ The most recent publication was issued by the Regulatory
    Information Service Center in October 2001 and printed in the Federal
    Register of December 3, 2001.
    ---------------------------------------------------------------------------
      The Office of Management and Budget began to publish a report on the
    costs and benefits of Federal regulation in 1997. The latest report,
    Making Sense of Regulation, was released in December 2001 and includes
    in the same document a report on unfunded mandates. \4\ The report
    estimates the total annual costs and benefits of Federal regulatory
    programs, the costs and benefits of recent major rules, and the impact
    of Federal regulation on groups such as state governments and on wages
    and economic growth. It also discusses the impact of the change in
    Administration on the rulemaking process, directions for regulatory
    improvement, and public comments on the draft report. The report on
    regulation is required by statute to be updated annually and delivered
    to Congress with the budget beginning next year.
    ---------------------------------------------------------------------------
      \4\ Office of Information and Regulatory Affairs, Office of Management
    and Budget, Making Sense of Regulation: 2001 Report to Congress on the
    Costs and Benefits of Regulations and Unfunded Mandates on State, Local,
    and Tribal Entities (2001).