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


[[Page 399]]

 
      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 its off-budget classification, this 
spending channels economic resources toward particular uses in the same 
way as on-budget spending. Off-budget spending and receipts 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 the activities are not conducted by the 
Government, such as the financial intermediation provided by the 
Government-sponsored enterprises; and in other cases this is because the 
activities are not costs to the Government itself, such as regulation. 
Nevertheless, some of these activities are important instruments of 
Federal policy. Some are discussed in the budget documents, and in 
certain cases the amounts involved are presented in conjunction with 
budget data. They are discussed in the section of this chapter on non-
budgetary activities.

                       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.

                                      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      543.0      135.2      -79.0         -73.9       -5.0
1982................................................    617.8      474.3      143.5      745.7      594.3      151.4     -128.0        -120.0       -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      686.0      165.8     -185.4        -185.6        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      990.4      806.9      183.5     -221.2        -237.9       16.7
1987................................................    854.4      641.0      213.4    1,004.1      810.2      193.8     -149.7        -169.3       19.6
1988................................................    909.3      667.8      241.5    1,064.5      861.8      202.7     -155.2        -194.0       38.8
1989................................................    991.2      727.5      263.7    1,143.6      932.7      210.9     -152.5        -205.2       52.8

1990................................................  1,032.0      750.3      281.7    1,253.2    1,028.1      225.1     -221.2        -277.8       56.6
1991................................................  1,055.0      761.2      293.9    1,324.4    1,082.7      241.7     -269.3        -321.5       52.2
1992................................................  1,091.3      788.9      302.4    1,381.7    1,129.3      252.3     -290.4        -340.5       50.1
1993................................................  1,154.4      842.5      311.9    1,409.5    1,142.9      266.6     -255.1        -300.4       45.3
1994................................................  1,258.6      923.6      335.0    1,461.9    1,182.5      279.4     -203.3        -258.9       55.7

1995................................................  1,351.8    1,000.8      351.1    1,515.8    1,227.1      288.7     -164.0        -226.4       62.4
1996................................................  1,453.1    1,085.6      367.5    1,560.5    1,259.6      300.9     -107.5        -174.1       66.6
1997................................................  1,579.3    1,187.3      392.0    1,601.3    1,290.6      310.6      -22.0        -103.3       81.4
1998................................................  1,721.8    1,306.0      415.8    1,652.6    1,336.0      316.6       69.2         -30.0       99.2
1999................................................  1,827.5    1,383.0      444.5    1,701.9    1,381.1      320.8      125.6           1.9      123.7

2000................................................  2,025.2    1,544.6      480.6    1,788.8    1,458.0      330.8      236.4          86.6      149.8
2001................................................  1,991.2    1,483.7      507.5    1,863.9    1,517.1      346.8      127.3         -33.4      160.7
2002................................................  1,853.2    1,337.9      515.3    2,011.0    1,655.3      355.7     -157.8        -317.5      159.7
2003 estimate.......................................  1,836.2    1,304.7      531.6    2,140.4    1,772.3      368.1     -304.2        -467.6      163.5
2004 estimate.......................................  1,922.0    1,365.9      556.2    2,229.4    1,847.9      381.5     -307.4        -482.1      174.7

2005 estimate.......................................  2,135.2    1,545.7      589.5    2,343.4    1,953.1      390.3     -208.2        -407.4      199.2
2006 estimate.......................................  2,263.2    1,648.4      614.8    2,463.7    2,060.1      403.6     -200.5        -411.7      211.2
2007 estimate.......................................  2,398.1    1,753.6      644.4    2,576.2    2,159.7      416.5     -178.1        -406.1      227.9
2008 estimate.......................................  2,520.9    1,847.7      673.2    2,710.5    2,280.4      430.1     -189.6        -432.7      243.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Off-budget transactions consist of the social security trust funds for all years and the Postal Service fund as of 1989.


[[Page 400]]

  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 excluded off-budget 
entities from general enforcement provisions (except for the 
administrative expenses of Social Security), although it had 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 show them only as a total amount, 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 classified 
off-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 
classified on-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 Federal 
spending and receipts. In 2004, the off-budget receipts are an estimated 
28 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 $307 billion--a $482 billion on-budget deficit partly 
offset by a $175 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 throughout the period of this table and for some years 
thereafter. However, it is estimated to subsequently decline, turn into 
a deficit, and never reach balance again under present law. The long-
term challenge to Social Security is discussed in a chapter in the main 
Budget volume, ``The Real Fiscal Danger,'' and is analyzed with much 
greater detail in chapter 3, ``Stewardship,'' of this volume.

                        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 receive payments from 
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 less the amounts received from the 
program accounts--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 they are non-
budgetary in concept, they are not classified as off-budget Federal 
entities. Their effect on the Government's borrowing requirement is 
explained in chapter 13 of this volume, ``Federal Borrowing and Debt.''
---------------------------------------------------------------------------
  \1\ See sec. 505(b).
---------------------------------------------------------------------------
  The budget outlays of credit programs thus measure the cost of 
Government credit decisions, and they record this cost when the credit 
assistance is provided. This enables the budget to more effectively 
fulfill 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. \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 24 of this volume, ``Budget System and Concepts and 
Glossary.'' The structure of credit reform is further explained in 
chapter VIII.A of the Budget of the United States Government, 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 in chapter 9, ``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, ``Credit 
and Insurance.''

  Premiums and discounts on debt buybacks.--The Treasury Department 
bought back outstanding bonds as part of its debt management from March 
2000 to April 2002. The premiums paid on debt buybacks were recorded 
outside the budget totals as a ``financing other

[[Page 401]]

than the change in debt held by the public.'' This budgetary treatment 
is explained in a section of chapter 24, ``Budget System and Concepts 
and Glossary,'' in the Analytical Perspectives volume of the 2001 
budget, pages 457-58. The buyback premiums in 2002 are shown in chapter 
13 of this volume, ``Federal Borrowing and Debt.''
  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 are further discussed in a section of chapter 24 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 
expenditures. In addition to this primary economic effect, taxation has 
important effects on the incentives that affect 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 in many ways analogous to the effects of 
outlays, but these effects are not recorded as budget outlays nor are 
they measured by budget receipts.
  Some of the effects of taxes on resource allocation and income 
distribution, but not all, arise from 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 known tax expenditures associated with the 
individual and corporation income taxes. The chapter also compares tax 
expenditures with spending programs and regulation as alternative 
methods for achieving policy objectives, and it provides an illustrative 
overview of performance measures that might be used to evaluate tax 
expenditures.
  The baseline concepts used to identify and measure tax expenditures in 
chapter 6 have important ambiguities. Although partly patterned on a 
comprehensive income tax, they are subjective, as noted last year, and 
are thus open to question in a number of respects. The Treasury 
Department has therefore begun a review of the tax expenditure 
presentation. The appendix to chapter 6 provides an initial review, 
focusing on three issues: (1) using a comprehensive income tax as a 
baseline, (2) including negative tax expenditures in the presentation 
(i.e., provisions that cause people to pay more tax than they would 
under a baseline--such as the failure to adjust interest, capital gains, 
and depreciation for inflation in comparison to a comprehensive income 
tax), and (3) using a comprehensive consumption tax as a baseline.

  Government-sponsored enterprises.--The Federal Government has 
established a number of Government-sponsored enterprises, such as Fannie 
Mae, Freddie Mac, 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 or tax expenditures 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 December 2002 and printed in the Federal 
Register of December 9, 2002 (vol. 67, no. 236).
---------------------------------------------------------------------------
  The Office of Management and Budget began to publish a report on the 
costs and benefits of Federal regulation in 1997. The latest report, 
Stimulating Smarter Regulation, was released in December 2002 and 
includes a report on unfunded mandates. \4\ The report estimates the 
total costs and benefits of Federal regulations reviewed by OMB from 
April 1995 through September 2001 and the impact of Federal regulation 
on state, local, and tribal governments and on wages, economic growth, 
and small business. It also discusses regulatory policy under the 
present Administration, regulatory governance abroad, and 
recommendations for reform. The report on regulation is required by 
statute to be updated annually.
---------------------------------------------------------------------------
  \4\ Office of Information and Regulatory Affairs, Office of Management 
and Budget, Stimulating Smarter Regulation: 2002 Report to Congress on 
the Costs and Benefits of Regulations and Unfunded Mandates on State, 
Local, and Tribal Entities (2002).