    [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 357]]

          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 the Government's financial plan
    for proposing, deciding, and controlling the allocation of resources.
    Those financial activities that constitute the direct allocation of
    resources are included in the budget's measures of receipts and
    expenditures, and characterized as ``budgetary.''
      Federal Government activities that do not involve the direct
    allocation of resources in a measurable way are characterized as ``non-
    budgetary'' and classified outside of the budget. For example, the
    budget does not include funds that are privately owned, but held and
    managed by the Government in a fiduciary capacity, such as the deposit
    funds owned by Native American Indians. In addition, the budget does not
    include costs that are borne by the private sector even when those costs
    result from Federal regulatory activity. Also, although the budget
    includes the subsidy costs of Federal loan programs, it does not include
    the other cash flows of these programs that do not involve an allocation
    of resources by the Government. Non-budgetary activities can be
    important instruments of Federal policy and are discussed briefly in
    this chapter and in more detail in other parts of the budget.
      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, as discussed below, refers to Federal
    Government activities that are required by law to be excluded from the
    budget totals.

                           Off-Budget Federal Entities

      The budget of the Federal Government reflects the 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 the programs of off-budget entities result in the same
    kind of spending and receipts as on-budget entities. The ``unified
    budget'' reflects the conceptual similarity between on-budget and off-
    budget entities by showing combined totals of outlays and receipts for
    both types of 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 financial 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.
      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 was classified off-
    budget in 1989.\1\ 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.
    ---------------------------------------------------------------------------
      \1\ The President's 2009 Budget requests appropriations for two new
    off-budget accounts--the Postal Regulatory Commission and the Office of
    Inspector General of the United States Postal Service. These
    appropriations will fund the administrative expenses of these two
    entities. As in the past, these expenses will be funded by the off-
    budget Postal Service Fund, but will now be classified as discretionary
    rather than mandatory, as required by the Postal Accountability and
    Enhancement Act, P.L. 109-435.
    ---------------------------------------------------------------------------
      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.

    [[Page 358]]

      Because Social Security is the largest single program in the unified
    budget and is classified by law as off-budget, the off-budget accounts
    comprise a significant part of total Federal spending and receipts. In
    2009, off-budget receipts are an estimated 26 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
    2009 is $407 billion--a $611 billion on-budget deficit partly offset by
    a $204 billion off-budget surplus. The off-budget surplus consists
    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 discussed in Chapter 13 of this volume,
    ``Stewardship.''

                                            Table 23-1.  COMPARISON OF TOTAL, ON-BUDGET, AND OFF-BUDGET TRANSACTIONS
                                                                    (In billions of dollars)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        Receipts                               Outlays                         Surplus or deficit (-)
               Fiscal Year              --------------------------------------------------------------------------------------------------------------------
                                            Total      On-budget    Off-budget     Total      On-budget    Off-budget     Total      On-budget    Off-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...............................      2,407.3      1,798.9        608.4      2,655.4      2,233.4        422.1       -248.2       -434.5        186.3
    2007...............................      2,568.2      1,933.2        635.1      2,730.2      2,276.6        453.6       -162.0       -343.5        181.5
    2008 estimate......................      2,521.2      1,859.0        662.2      2,931.2      2,461.2        470.1       -410.0       -602.2        192.2
    2009 estimate......................      2,699.9      2,004.4        695.6      3,107.4      2,615.5        491.9       -407.4       -611.1        203.7

    2010 estimate......................      2,931.3      2,191.2        740.2      3,091.3      2,575.0        516.4       -160.0       -383.8        223.8
    2011 estimate......................      3,076.4      2,295.1        781.4      3,171.2      2,630.5        540.8        -94.8       -335.4        240.6
    2012 estimate......................      3,269.9      2,451.3        818.6      3,221.8      2,653.8        568.0         48.1       -202.5        250.6
    2013 estimate......................      3,428.2      2,569.1        859.1      3,398.9      2,769.7        629.2         29.3       -200.6        229.9
    --------------------------------------------------------------------------------------------------------------------------------------------------------

                            Non-Budgetary Activities

      Some important Government activities are characterized as non-
    budgetary because they do not involve the direct allocation of resources
    by the Government. Some of the Government's major non-budgetary
    activities are discussed below.

      Federal credit programs: budgetary and non-budgetary transactions.--
    Federal credit programs make direct loans or guarantee private loans.
    The Federal Credit Reform Act of 1990 changed 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 creates a financial asset that
    will produce future cash inflows for the Government as the loan is
    repaid. When the

    [[Page 359]]

    Government guarantees a loan made by a non-Federal lender, it creates 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
    the future repayments of principal and interest as receipts. In
    addition, prior to the Credit Reform Act, the budget did not record loan
    guarantees as a cost or an outlay unless or until a loan actually
    defaulted, and the Government had to fulfill its guarantee commitment.
      Since 1992, under the Credit Reform Act, the budgetary costs of direct
    loans and loan guarantees have been 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. For example, 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. Similarly, a group of loan guarantees with upfront fees that
    exactly offset the expected cost of defaults would have zero net cost
    and no effect on Government outlays. 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 is
    measured on a present value basis. This subsidy 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 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. Under the Credit Reform Act, the financing accounts are
    non-budgetary and excluded from the budget.\2\ 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.''
    ---------------------------------------------------------------------------
      \2\ See 505(b) of the Federal Credit Reform Act of 1990.
    ---------------------------------------------------------------------------
      Since the adoption of credit reform, the budget outlays of credit
    programs reflect only the subsidy costs of Government credit and show
    this cost when the credit assistance is provided, thereby reflecting the
    true cost of credit decisions. 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.\3\ Credit programs are discussed in Chapter 7
    of this volume, ``Credit and Insurance.''
    ---------------------------------------------------------------------------
      \3\ 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.
    ---------------------------------------------------------------------------

      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 Social Security proposal is adopted, contributions into the personal
    accounts will be recorded as outlays, but the accounts themselves will
    be classified as 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.''

      Government-sponsored enterprises.--The Federal Government has
    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, despite their origin, they are now all privately
    owned and controlled. However, because they were established by the
    Federal Government to serve public-policy purposes and because

    [[Page 360]]

    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.''
      Tax expenditures.--The Federal tax system includes numerous special
    tax exclusions, exemptions, deductions, and similar provisions. These
    provisions subsidize particular activities and can 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.
      Although the effects of tax expenditures are incorporated into the
    Budget's estimates of receipts, tax expenditures are considered non-
    budgetary. This is because tax expenditures are not shown explicitly as
    outlays or as negative tax receipts and because tax expenditures pose
    significant measurement problems. Tax expenditures are identified and
    measured by first specifying a hypothetical ``baseline'' tax system,
    which as noted below can be highly subjective and technically complex.
    Tax expenditures are discussed in Chapter 19 of this volume, ``Tax
    Expenditures.'' Chapter 19 presents estimates for tax expenditures
    associated with individual and corporate income taxes, and discusses how
    tax expenditures compare with spending programs and regulation as
    alternative methods for achieving policy objectives.
      The current tax expenditure baseline is loosely patterned on a
    comprehensive income tax, but departs from that standard in a number of
    areas. As explained in more detail in Chapter 19, the current baseline
    concepts used to identify and measure tax expenditures are somewhat
    arbitrary and yet essential. As noted in the chapter, the magnitude and
    distribution of tax expenditures would be significantly different if
    measured relative to a pure comprehensive income tax or a comprehensive
    consumption tax rather than the current baseline. The appendix to
    Chapter 19 provides a critique of the current tax expenditure
    presentation and attempts to answer three questions: (1) what would tax
    expenditures be if a comprehensive income tax were used as the baseline
    without any departures from such a standard; (2) what would tax
    expenditures be 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 the baseline. Examples
    include interest, capital gains and depreciation provisions that are not
    adjusted for inflation.
      Hypothetically, tax expenditures could be included as outlays in the
    budget. Doing so would require measuring receipts as the sum of actual
    receipts plus the total revenue lost to the tax expenditures and
    measuring outlays as the sum of actual outlays plus the tax
    expenditures. The budget would then show the Government's allocation of
    resources to education, housing and other activities as the sum of
    spending programs plus tax expenditures; this allocation would be
    different from the allocation for just spending programs alone. Because
    receipts and outlays would be increased by the same amount, the
    resulting deficit would be unchanged. The difficulties in identifying
    and measuring tax expenditures make it impractical to include tax
    expenditures in the budget in this manner.

      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 Government's cost of
    conducting regulatory activities, the costs imposed on the private
    sector as a result of the regulation are treated as non-budgetary and
    not included in the budget. 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.\4\
    ---------------------------------------------------------------------------
      \4\ 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 10, 2007 (vol. 72, no. 236). Both the Regulatory Plan and
    Unified Agenda are available on-line at www.reginfo.gov and at
    www.gpoaccess.gov.
    ---------------------------------------------------------------------------
      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 March 2007.\5\ The report estimates the total costs and benefits of
    major Federal regulations reviewed by OMB from October 1996 through
    September 2006, and the impact of Federal regulation on State, local,
    and tribal governments. It also includes a report on Agency Compliance
    with the Unfunded Mandates Reform Act of 1995.
    ---------------------------------------------------------------------------
      \5\ Office of Information and Regulatory Affairs, Office of Management
    and Budget, 2007 Draft Report to Congress on the Costs and Benefits of
    Federal Regulations and Unfunded Mandates on State, Local, and Tribal
    Entities (2007). The Report is available at www.whitehouse.gov/omb/
    inforeg/2007----cb/2007----draft----cb----report.pdf.
    ---------------------------------------------------------------------------

      Monetary Policy.--As noted above, the budget is a financial plan for
    allocating resources by raising revenues and spending those revenues.
    This fiscal policy tool is used by elected Government officials to
    promote economic growth. Monetary policy is another tool that
    governments use to promote a strong and stable economy, primarily by
    maintaining price stability and a sound banking system. In the United
    States, monetary policy is conducted by the Federal Reserve System,
    which, by law, is a self-financing entity that is independent of the
    other branches of Government. The effects of monetary policy and the
    actions of the Federal Reserve System are non-budgetary; the budget of
    the Board of Governors of the Federal Reserve System is included in the
    Budget Appendix for informational purposes only.

    [[Page 361]]

      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.