    [Analytical Perspectives]
    [Dimensions of the Budget]
    [23. Off-Budget Federal Entities and Non-Budgetary Activities]
    [From the U.S. Government Printing Office, www.gpo.gov]

    [[Page 347]]

          23.  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. Despite this legal distinction, the
    off-budget Federal entities engage in the same basic activities of
    government as the on-budget entities. They conduct similar programs and
    the programs they conduct result in the same kind of spending and
    receipts as do the on-budget entities. Off-budget spending channels
    economic resources toward particular uses in the same way as does on-
    budget spending. Off-budget spending and receipts are discussed further
    in the following section on off-budget Federal entities.
      The budget is a financial plan for proposing, deciding, and
    controlling the allocation of resources by the Federal Government. It
    does not include, however, the financial consequences of all Federal
    activities. Some of these activities are non-budgetary by their inherent
    nature either because the activities are not conducted by agencies of
    the Government, such as the financial intermediation provided by
    Government-sponsored enterprises; or because the funds involved are
    privately owned, such as the deposit funds owned by Indian tribes and
    managed on their behalf by the Government in a fiduciary capacity. In
    other cases, such as regulation, the Federal activities give rise to
    costs that are borne by the private sector rather than the Government.
    Although non-budgetary, some of these activities are important
    instruments of Federal policy and are discussed in other parts of the
    budget along with relevant financial data. They are also discussed
    further in the section of this chapter on non-budgetary activities.

                                          TABLE 23-1.  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
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    1980...................................................    517.1      403.9      113.2      590.9      477.0      113.9      -73.8      -73.1       -0.7
    1981...................................................    599.3      469.1      130.2      678.2      543.0      135.3      -79.0      -73.9       -5.1
    1982...................................................    617.8      474.3      143.5      745.7      594.9      150.9     -128.0     -120.6       -7.4
    1983...................................................    600.6      453.2      147.3      808.4      660.9      147.4     -207.8     -207.7       -0.1
    1984...................................................    666.5      500.4      166.1      851.9      685.7      166.2     -185.4     -185.3       -0.1

    1985...................................................    734.1      547.9      186.2      946.4      769.4      176.9     -212.3     -221.5        9.2
    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      809.3      194.8     -149.7     -168.4       18.6
    1988...................................................    909.3      667.8      241.5    1,064.5      860.1      204.4     -155.2     -192.3       37.1
    1989...................................................    991.2      727.5      263.7    1,143.8      932.9      210.9     -152.6     -205.4       52.8

    1990...................................................  1,032.1      750.4      281.7    1,253.1    1,028.1      225.1     -221.0     -277.6       56.6
    1991...................................................  1,055.1      761.2      293.9    1,324.3    1,082.6      241.7     -269.2     -321.4       52.2
    1992...................................................  1,091.3      788.9      302.4    1,381.6    1,129.3      252.3     -290.3     -340.4       50.1
    1993...................................................  1,154.5      842.5      311.9    1,409.5    1,142.9      266.6     -255.1     -300.4       45.3
    1994...................................................  1,258.7      923.7      335.0    1,461.9    1,182.5      279.4     -203.2     -258.8       55.7

    1995...................................................  1,351.9    1,000.9      351.1    1,515.9    1,227.2      288.7     -164.0     -226.4       62.4
    1996...................................................  1,453.2    1,085.7      367.5    1,560.6    1,259.7      300.9     -107.4     -174.0       66.6
    1997...................................................  1,579.4    1,187.4      392.0    1,601.3    1,290.7      310.6      -21.9     -103.2       81.4
    1998...................................................  1,722.0    1,306.2      415.8    1,652.7    1,336.1      316.6       69.3      -29.9       99.2
    1999...................................................  1,827.6    1,383.2      444.5    1,702.0    1,381.3      320.8      125.6        1.9      123.7

    2000...................................................  2,025.5    1,544.9      480.6    1,789.2    1,458.5      330.8      236.2       86.4      149.8
    2001...................................................  1,991.4    1,483.9      507.5    1,863.2    1,516.4      346.8      128.2      -32.4      160.7
    2002...................................................  1,853.4    1,338.1      515.3    2,011.2    1,655.5      355.7     -157.8     -317.4      159.7
    2003...................................................  1,782.5    1,258.7      523.8    2,160.1    1,797.1      363.0     -377.6     -538.4      160.8
    2004...................................................  1,880.3    1,345.5      534.7    2,293.0    1,913.5      379.5     -412.7     -568.0      155.2

    2005...................................................  2,153.9    1,576.4      577.5    2,472.2    2,070.0      402.2     -318.3     -493.6      175.3
    2006 estimate..........................................  2,285.5    1,675.5      610.0    2,708.7    2,277.7      431.0     -423.2     -602.1      179.0
    2007 estimate..........................................  2,415.9    1,773.5      642.3    2,770.1    2,317.0      453.1     -354.2     -543.4      189.2
    2008 estimate..........................................  2,590.3    1,911.1      679.1    2,813.6    2,347.1      466.5     -223.3     -436.0      212.7
    2009 estimate..........................................  2,714.2    1,998.0      716.2    2,921.8    2,435.2      486.6     -207.6     -437.2      229.7

    2010 estimate..........................................  2,878.2    2,119.7      758.5    3,060.9    2,527.2      533.7     -182.7     -407.5      224.8
    2011 estimate..........................................  3,034.9    2,233.3      801.6    3,239.8    2,648.7      591.1     -204.9     -415.4      210.5
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    \1\ Off-budget transactions consist of the Social Security trust funds and the Postal Service fund.

    [[Page 348]]

                           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
    declared to be 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 separated from the on-budget
    receipts, outlays, and surplus or deficit; and its budget authority is
    also separated from the total budget authority for the on-budget Federal
    entities. The Budget Enforcement Act of 1990 excluded off-budget
    entities from its general enforcement provisions (except for the
    administrative expenses of Social Security); it had separate enforcement
    provisions for Social Security.
      Off-budget Federal entities conduct programs of the same type as on-
    budget entities. Most of the tables in the budget include both on-budget
    and off-budget amounts both separately and in combination, or show them
    only as a total amount, in order to show the unified budget totals that
    measure 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 declared off-budget at different times before 1986,
    but have been classified on-budget by law at least since 1985.
      Table 23-1 divides total Federal Government receipts, outlays, and the
    surplus or deficit between on-budget and off-budget amounts. Within this
    table the Social Security and Postal Service transactions are classified
    as off-budget for all years, in order to provide a consistent comparison
    over time. 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 2007, off-budget receipts are an estimated 27
    percent of total receipts, and off-budget outlays are a smaller, but
    still significant, percentage of total outlays at 16 percent. The
    estimated unified budget deficit in 2007 is $354 billion--a $543 billion
    on-budget deficit partly offset by a $189 billion off-budget surplus.
    The off-budget surplus consists almost entirely of the Social Security
    surplus. Social Security had small deficits or surpluses from its
    inception through the early 1980s, but since the middle 1980s it has had
    a large and growing surplus. However, under present law, the surplus is
    eventually estimated to decline, turn into a deficit, and never reach
    balance again. The long-term challenge of Social Security is addressed
    in a chapter of the main budget volume, ``The Nation's Fiscal Outlook,''
    and in Chapter 13 of this volume, ``Stewardship.''

                            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 similar to the net outlays of other Federal
    programs and are included in the budget as outlays of credit program
    accounts whenever the Federal Government makes a direct loan or
    guarantees a private loan.
      All of the other cash transactions with the public that result from
    Government credit programs--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. Transactions in
    the financing accounts do, however, affect the Government's borrowing
    requirement, as explained in Chapter 16 of this volume, ``Federal
    Borrowing and Debt.''
    ---------------------------------------------------------------------------
      \1\ See 505(b) of the Federal Credit Reform Act of 1990.
    ---------------------------------------------------------------------------
      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 26 of this volume, ``The Budget System and
    Concepts.'' 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 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 7 of this volume, ``Credit
    and Insurance.''
      Deposit funds.--Deposit funds are non-budgetary accounts that record
    amounts held by the Government

    [[Page 349]]

    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 as an agent 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. The Social Security
    personal retirement accounts proposed by the Administration would be
    owned by individuals, not the Government. Contributions into the
    accounts will be recorded as outlays, but the accounts themselves will
    be non-budgetary in nature. If these accounts were held by the
    Government, it would be only in a fiduciary capacity, and the accounts
    would be classified as deposit funds. Deposit funds are further
    discussed in a section of Chapter 26 of this volume, ``The Budget System
    and Concepts.''
      Taxation and tax expenditures.--Taxation provides the Government with
    income, which is included in the budget as ``receipts.'' Taxes withdraw
    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 structure of the Federal tax
    system, the tax rates and other structural characteristics of each
    Federal tax. The effects of taxation on resource allocation and income
    distribution can be similar to the effects of outlays, but these effects
    are treated as non-budgetary.
      One of the ways that the tax system affects resource allocation and
    income distribution is through special exclusions, exemptions,
    deductions, and similar provisions that have been added to the tax code
    over time, and which can be identified by comparing the tax law with an
    idealized tax baseline. The revenue discrepancies caused by these
    special provisions are defined as ``tax expenditures'' and are discussed
    in Chapter 19 of this volume, ``Tax Expenditures.'' That chapter
    includes tables with estimates for 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 19 reflect important ambiguities. Although partly patterned on a
    comprehensive income tax, they are subjective, as explained in the tax
    expenditure chapter in recent years, and are open to question in a
    number of respects. The appendix to Chapter 19 provides the Treasury
    Department's preliminary review of the current tax expenditure
    presentation, focusing on three issues: (1) using a comprehensive income
    tax as a baseline, (2) using a comprehensive consumption tax as a
    baseline, and (3) defining negative tax expenditures (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).
      Government-sponsored enterprises.--The Federal Government has
    established several 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
    originally for public-policy purposes, and because they still serve such
    purposes to some extent, estimates of their activities are reported in a
    separate chapter of the budget Appendix, and their activities are
    analyzed in Chapter 7 of this volume, ``Credit and Insurance.''
      Regulation.--Some types of regulation, by requiring the private sector
    to make expenditures for specified purposes, such as safety and
    pollution control, have economic effects that are similar to budget
    outlays or tax expenditures. Regulatory priorities and plans are
    described in the annual Regulatory Plan and the semi-annual Unified
    Agenda of Federal Regulatory and Deregulatory Actions.\3\
    ---------------------------------------------------------------------------
      \3\ The most recent publication was issued by the General Services
    Administration's Regulatory Information Service Center in October 2005
    and printed in the Federal Register of October 31, 2005 (vol. 70, no.
    209), and is available on-line at www.reginfo.gov.
    ---------------------------------------------------------------------------
      The Office of Management and Budget began to publish an annual report
    on the costs and benefits of Federal regulation in 1997. The latest
    report, Validating Regulatory Analysis, was released in December 2005
    and also includes a report on unfunded mandates. \4\ The report
    estimates the total costs and benefits of major Federal regulations
    reviewed by OMB from October 1994 through September 2005 and the impact
    of Federal regulation on State, local, and tribal governments. It also
    reviews the international literature on the effects of regulation on
    national economic growth and performance, reviews the accuracy of
    projected benefit and cost estimates by comparing the projected impacts
    of a subset of Federal regulation with benefit and cost information
    obtained after the regulations have been implemented, and summarizes the
    Administration's regulatory reform accomplishments. The draft of the
    2006 report will be published in February 2006 for public comment.
    ---------------------------------------------------------------------------
      \4\ Office of Information and Regulatory Affairs, Office of Management
    and Budget, Validating Regulatory Analysis: 2005 Report to Congress on
    the Costs and Benefits of Federal Regulations and Unfunded Mandates on
    State, Local, and Tribal Entities (2005).