[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 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.
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\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.
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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.
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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)
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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............................... 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
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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
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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.''
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\2\ See 505(b) of the Federal Credit Reform Act of 1990.
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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.''
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\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.
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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 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
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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\
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\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.
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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 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.
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\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.
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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.
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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.