[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]
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23. OFF-BUDGET FEDERAL ENTITIES AND NON-BUDGETARY ACTIVITIES
The Federal Government's activities have far-reaching impacts,
affecting the economy and society of the Nation and the world. One of
the primary activities of the Government is to allocate resources to
meet the Nation's needs. The budget is a financial plan for proposing,
deciding, and controlling the allocation of resources by the Federal
Government. Those Federal financial activities that affect the
Government's allocation of resources in a measurable way are
characterized as ``budgetary.''
Those Federal activities that do not involve the Government's direct
allocation of resources are characterized as ``non-budgetary'' and
classified outside of the budget. For example, the budget does not
include funds that are privately owned, such as the deposit funds owned
by Native American Indians, even though those funds are held and managed
by the Government in a fiduciary capacity. In addition, the budget does
not include costs that are borne by the private sector rather than the
Government even though those costs result from Federal activity, such as
regulatory activity. Also, the budget includes the subsidy costs of
Federal loan programs, but excludes other cash flows related to these
programs because they do not reflect an allocation of resources, as
explained below. 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.
The term ``off-budget'' may appear to be synonymous with ``non-
budgetary.'' However, the term ``off-budget'' has a meaning distinct
from ``non-budgetary'' and refers to Federal Government activities that
are required by law to be excluded from the budget totals. The
``unified'' budget of the Federal Government reflects this legal
distinction between ``on-budget'' and ``off-budget'' entities by showing
outlays and receipts for both types of entities separately. Although
there is a legal distinction between on-budget and off-budget entities,
there is no conceptual difference between the two. The off-budget
Federal entities engage in the same basic activities of government as
the on-budget entities and off-budget spending channels economic
resources toward particular uses in the same way as does on-budget
spending. The unified budget reflects the conceptual similarity between
on-budget and off-budget entities by showing outlays and receipts for
both types of entities combined. Off-budget spending and receipts are
discussed further in the following section on off-budget Federal
entities.
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 that would
otherwise be included in the budget has been declared to be off-budget
by law. Such 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 by law, 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. Federal entities that are off-budget by law are distinct from
entities that are non-budgetary, as discussed below.
Off-budget Federal entities conduct programs of the same type as on-
budget entities, and the programs they conduct result in the same kind
of spending and receipts as on-budget entities. For this reason, most of
the tables in the budget include both on-budget and off-budget amounts
separately and in combination, or as a total amount.
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 that had been declared off-budget by law at different
times before 1986 have been classified on-budget by law since at least
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.
Because Social Security is off-budget, the off-budget accounts
comprise a significant part of total Federal spending and receipts. In
2008, off-budget receipts are an estimated 25 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
2008 is $239 billion--a $451 billion on-budget deficit partly offset by
a $212 billion off-budget surplus. The off-budget surplus consists
almost en
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tirely 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 within approximately ten years and never reach balance
again. The long-term challenge of Social Security is addressed briefly
in a chapter of the main Budget volume, ``The Nation's Fiscal Outlook,''
and in Chapter 13 of this volume, ``Stewardship.''
TABLE 23-1. COMPARISON OF TOTAL, ON-BUDGET, AND OFF-BUDGET TRANSACTIONS \1\
(In billions of dollars)
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Receipts Outlays Surplus or deficit (-)
Fiscal Year --------------------------------------------------------------------------------------------------------------------
Total On-budget Off-budget Total On-budget Off-budget Total On-budget Off-budget
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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............................... 2,407.3 1,798.9 608.4 2,655.4 2,233.4 422.1 -248.2 -434.5 186.3
2007 estimate...................... 2,540.1 1,906.0 634.1 2,784.3 2,333.0 451.3 -244.2 -427.0 182.8
2008 estimate...................... 2,662.5 1,988.4 674.1 2,901.9 2,439.3 462.5 -239.4 -450.9 211.6
2009 estimate...................... 2,798.3 2,086.9 711.4 2,985.5 2,499.7 485.8 -187.2 -412.7 225.6
2010 estimate...................... 2,954.7 2,201.4 753.3 3,049.1 2,540.5 508.6 -94.4 -339.1 244.7
2011 estimate...................... 3,103.6 2,307.8 795.8 3,157.3 2,625.8 531.5 -53.8 -318.0 264.3
2012 estimate...................... 3,307.3 2,472.0 835.3 3,246.3 2,659.1 587.2 61.0 -187.1 248.1
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\1\ Off-budget transactions consist of the Social Security trust funds and the Postal Service fund.
Non-Budgetary Activities
Some important Federal activities are characterized as non-budgetary
because they do not involve the allocation of resources by the Federal
Government or they allocate resources in a way that is indirect. The
Budget does not reflect these indirect economic and financial effects.
Federal credit: budgetary and non-budgetary transactions.--Federal
credit programs make direct loans or guarantee private loans. The
Federal Credit Reform Act of 1990 refined how the costs of credit
programs are recorded in the budget by defining as budgetary the
subsidies provided by the credit programs and classifying the other
credit cash flows as non-budgetary.
When the Government makes a loan, it generates a financial asset that
will produce future cash inflows for the Government as the loan is
repaid. When the Government guarantees a loan made by a non-Federal
lender, it acquires a contingent liability that may require a cash
outflow in a future year. Prior to the Credit Reform Act, the budget
treated the full amount of a Federal loan as a cost and an outlay at the
time the loan was made, and treated the future repayments of principal
and interest as receipts. Similarly, the budget did not record the cash
outflows for loan guarantees as a cost and an outlay until the loan
defaulted, and the Government had to fulfill its guarantee commitment.
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Under the Credit Reform Act, beginning in 1992, the budgetary costs of
direct loans and loan guarantees are measured as the net present value
of estimated cash outflows from the Government less the present value of
estimated cash inflows to the Government. The cash flows are discounted
at the Government's cost of borrowing. The costs are recorded in the
budget at the time the Government makes a loan or guarantees a loan made
by a non-Federal lender. A group of loans that is expected to repay
exactly what it costs the Government to finance would have zero net cost
and, under the Credit Reform Act, no effect on Government outlays. The
same is true for a group of non-Federal loans that is guaranteed by the
Government and for which upfront fees offset the cost of defaults.
However, if the Government provides a subsidy, by charging below-market
interest rates or fees that are less than the cost of the defaults, or
by paying interest subsidies to non-Federal lenders, the Government
incurs a budgetary cost, which also is measured on a present value
basis. This cost is similar to the net outlays of other Federal programs
and, under the Credit Reform Act, is included in the budget as an outlay
of a credit ``program'' account.
All of the cash transactions with the public that result from
Government credit programs--the disbursement and repayment of loans, the
payment of default claims on guarantees, and the collection of interest
and fees--are recorded in credit ``financing'' accounts. These 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 or outlays to
the Government. Therefore, the financing accounts are non-budgetary and
excluded from the budget under the Credit Reform Act. \1\ Transactions
of the financing accounts do, however, affect the Government's borrowing
requirements, as explained in Chapter 16 of this volume, ``Federal
Borrowing and Debt.''
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\1\ See 505(b) of the Federal Credit Reform Act of 1990.
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Since credit reform, the budget outlays of credit programs reflect
only the subsidy costs of Government credit, thus measuring accurately
the cost of credit decisions, and record this cost when the credit
assistance is provided. This enables the budget to fulfill its purpose
of being a financial plan for allocating resources among alternative
uses by 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\ Credit programs are discussed in Chapter 7 of this
volume, ``Credit and Insurance.''
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\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.
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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 Government Securities
Investment Fund, which is also known as the G Fund. It is one of several
investment funds managed by the Federal Retirement Thrift Investment
Board, as an agent, for Federal employees who participate in the
Government's defined contribution retirement plan, the Thrift Savings
Plan (TSP). Because the G Fund assets, which are held by the Department
of the Treasury, are the property of Federal employees and are held by
the Government only in a fiduciary capacity, the transactions of the
Fund are not transactions of the Government itself and are non-
budgetary. The administrative functions of the Thrift Investment Board
are carried out by Government employees, and are, therefore, included in
the budget on a reimbursable basis. For similar reasons, the budget
excludes funds that are owned by Native American Indians, but held and
managed by the Government in a fiduciary capacity.
The Social Security voluntary personal retirement accounts proposed by
the Administration would be owned by individuals, not the Government. If
the proposal is adopted, contributions into the accounts will be
recorded as outlays, but the accounts themselves would be non-budgetary.
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.''
Tax expenditures.-- The Federal tax system includes numerous special
tax exclusions, exemptions, deductions, and similar provisions that have
been added to the tax code over time. These provisions affect resource
allocation and income distribution in ways that are similar to spending
programs. Because of this similarity, these provisions are referred to
as ``tax expenditures.'' Unlike typical spending programs, however, tax
expenditures reduce receipts rather than increase outlays. Measuring tax
expenditures requires specifying a hypothetical ``baseline'' tax system,
which as noted below can be highly subjective. Because of the
subjectivity in determining what is a tax expenditure and because of the
difficulties in measuring them, tax expenditures are treated as non-
budgetary.
Tax expenditures are discussed in Chapter 19 of this volume, ``Tax
Expenditures.'' Chapter 19 presents estimates for tax expenditures
associated with the individual and corporate income taxes, and discusses
how tax expenditures compare with spending programs and regulation as
alternative methods for achieving policy
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objectives. The chapter explains that the baseline concepts used to
identify and measure tax expenditures are somewhat arbitrary. As the
chapter notes, the magnitude and distribution of tax expenditures would
be significantly different if measured relative to a comprehensive
income tax or a comprehensive consumption tax. The current tax
expenditure baseline is loosely patterned on a comprehensive income tax,
but departs from that standard in a number of areas. The appendix to
Chapter 19 provides a critique of the current tax expenditure
presentation and attempts to answer three questions: (1) what would be
tax expenditures if a comprehensive income tax were used as the baseline
without any departures from such a standard; (2) what would be the tax
expenditures if a comprehensive consumption tax were used to define the
baseline; and (3) what are the negative tax expenditures under the
current system. Negative tax expenditures are 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.
Hypothetically, tax expenditures could be included in the budget by
measuring receipts as the sum of actual receipts plus tax expenditures
receipts, and measuring outlays as the sum of actual outlays plus tax
expenditures. The budget could then show the allocation of resources to
education, housing or other purposes through the combined effect of tax
expenditures and spending programs. Receipts and outlays would be
increased by the same amount, so this change in display would have no
impact on the deficit. However, as noted above, the difficulty in
identifying and measuring tax expenditures makes it impractical to
include tax expenditures in the budget.
Government-sponsored enterprises.--The Federal Government chartered
several Government-sponsored enterprises (GSEs), such as Fannie Mae,
Freddie Mac, and the Farm Credit Banks, to provide financial
intermediation for specified public purposes. The GSEs are excluded from
the budget because they are privately owned and controlled. However,
because they were established by the Federal Government 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.--Government regulation often requires the private sector
to make expenditures for specified purposes, such as safety and
pollution control. Although the budget reflects the cost to the
Government of conducting regulatory activities, the costs imposed on the
private sector as a result of the regulation are treated as non-
budgetary. The Government's regulatory priorities and plans are
described in the annual Regulatory Plan and the semi-annual Unified
Agenda of Federal Regulatory and Deregulatory Actions. \3\
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\3\ The most recent Regulatory Plan and introduction to the Unified
Agenda were issued by the General Services Administration's Regulatory
Information Service Center and were printed in the Federal Register of
December 11, 2006 (vol. 71, no. 237). Both the Regulatory Plan and
Unified Agenda are available on-line at www.reginfo.gov and at
www.gpoaccess.gov.
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Although not included in the budget, the estimated costs and benefits
of Federal regulation have been published annually by the Office of
Management and Budget (OMB) since 1997. The latest report was released
in January 2007. \4\ The report estimates the total costs and benefits
of major Federal regulations reviewed by OMB from October 1995 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,
provides an update on various initiatives to improve regulatory
cooperation internationally, provides an update on the status of
regulatory reforms resulting from three public nomination initiatives in
2001, 2002, and 2004, and includes a report on Agency Compliance with
the Unfunded Mandates Reform Act of 1995. The draft of the 2007 report
will be published in February 2007 for public comment.
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\4\ Office of Information and Regulatory Affairs, Office of Management
and Budget, Validating Regulatory Analysis: 2006 Report to Congress on
the Costs and Benefits of Federal Regulations and Unfunded Mandates on
State, Local, and Tribal Entities (2006).
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Indirect Macroeconomic Effects of Federal Activity.--Government
activity has many effects on the Nation's economy that extend beyond the
amounts recorded in the budget. Government expenditures, taxation, tax
expenditures, regulation and trade policy can all affect the allocation
of resources among private uses and income distribution among
individuals. These effects, resulting indirectly from Federal activity,
are generally not part of the budget, but the most important of them are
discussed in this volume and in the main Budget volume.