Budget Issues: Earmarking in the Federal Government (Fact Sheet,
08/01/95, GAO/AIMD-95-216FS).

Pursuant to a congressional request, GAO reviewed the extent to which
federal receipts are earmarked for particular uses through authorizing
legislation, focusing on: (1) what percent of total receipts from the
public are earmarked; (2) the level of earmarking by fund type; and (3)
the extent of earmarking at the state government level.

GAO found that: (1) in fiscal year (FY) 1994, 47 percent of total
receipts from the public were earmarked in the federal budget; (2) the
six types of budget accounts are classified as either expenditure or
receipt accounts; (3) only general fund budget accounts are used to
account for collections that are not earmarked for a specific purpose,
but some general fund accounts receive earmarked receipts which are
credited directly to the account; (4) the five other types of budget
accounts are designed for programs mainly financed by earmarked
receipts; (5) the FY 1994 federal budget had 574 special and trust fund
receipt accounts that received earmarked receipts and 567 expenditure
accounts that received offsetting collections; (6) nonrevolving trust
funds, which finance large entitlement programs, accounted for about 75
percent of all earmarked public receipts; (7) states earmark about 24
percent of their collections, but there is a great variation among
states in the extent of their earmarking; and (8) states appear to be
turning more readily to earmarking taxes than they did in the past.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD-95-216FS
     TITLE:  Budget Issues: Earmarking in the Federal Government
      DATE:  08/01/95
   SUBJECT:  General fund accounts
             Government collections
             Authorization
             Trust revolving funds
             Budget receipts
             Appropriated funds
             Spending legislation
             Budget authority
             Budget outlays
             Offsetting collections
IDENTIFIER:  Land and Water Conservation Fund
             Medicare Program
             OMB MAX Budget System
             
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Cover
================================================================ COVER


Fact Sheet for the Chairman, Committee on the Budget, House of
Representatives

August 1995

BUDGET ISSUES - EARMARKING IN THE
FEDERAL GOVERNMENT

GAO/AIMD-95-216FS

Earmarking in the Federal Government


Abbreviations
=============================================================== ABBREV

  NCSL - National Conference of State Legislatures
  ABCD - Test

Letter
=============================================================== LETTER


B-262146

August 1, 1995

The Honorable John R.  Kasich
Chairman, Committee on the Budget
House of Representatives

Dear Mr.  Chairman: 

This fact sheet responds to your request that we identify the extent
to which federal receipts have been earmarked in fiscal year 1994. 
In our analysis, we considered receipts to be earmarked when they
were designated for particular uses by authorizing legislation or
permanent law.  To provide information on how extensive earmarking is
in the budget, you asked us to determine what percent of total
receipts from the public are earmarked and the level of earmarking by
fund type.  You also asked us to obtain information on the extent of
earmarking at the state government level. 

In summary, we found extensive earmarking in numerous accounts, such
as those financing the Land and Water Conservation Fund, the Medicare
trust funds, as well as the transportation trust funds.  Our analysis
showed that in fiscal year 1994 roughly $690 billion, or 47 percent,
of total receipts from the public\1 were earmarked in the federal
budget.  This percentage is about the same as what we found during
our last review of earmarking for fiscal year 1988 when about 48
percent of total receipts from the public were earmarked.\2

There are six types of budget accounts--nonrevolving trust, public
enterprise, special, intragovernmental, general, and revolving trust. 
Of these types, only "general fund" accounts are used to account for
collections that are not earmarked by law for a specific purpose. 
However, some general fund accounts also receive earmarked receipts
in the form of offsetting collections--either from the public or from
federal sources--which are credited directly to the account and are
available for use, often without further legislative action.  The
remaining five types of accounts are designed for programs primarily
financed by earmarked receipts. 

All budget accounts are classified as either expenditure or receipt
accounts.  Receipt accounts record income while expenditure accounts
record outlays.  Some offsetting collections are credited directly to
expenditure accounts.  The fiscal year 1994 federal budget had 574
special and trust fund receipt accounts that received some earmarked
receipts.  In addition, 567 expenditure accounts received offsetting
collections. 

Nonrevolving trust funds accounted for about $520 billion, or roughly
75 percent, of all earmarked receipts from the public.  Nonrevolving
trust funds finance large entitlement programs (such as Social
Security and Medicare) and transportation infrastructure construction
and maintenance through the transportation trust funds.  Public
enterprise revolving funds accounted for about $126 billion, or
roughly 18 percent, of all earmarked receipts from the public.  This
fund type receives amounts generated in a continuing cycle of
business-type activity.  Examples include the Postal Service and the
Export Import Bank.  The other four fund types--special,
intragovernmental, general, and nonrevolving trust--accounted for
roughly $44 billion, or about 7 percent, of earmarked receipts from
the public.  The tables in appendix I describe each fund type and
summarize earmarked receipts by fund type. 

On average, states earmark less of their revenues than the federal
government.  According to a recent report by the National Conference
of State Legislatures (NCSL), states earmark about 24 percent of
their collections.  However, this average masks a great variation
among states in the extent of earmarking.  For instance, Alabama
earmarks roughly 87 percent of its collections, while Kentucky
earmarks only about 4 percent.  NCSL reports that while the earmarked
share of state tax collections has remained near 23 percent since
1979, state legislatures appear to be turning more readily to
earmarking taxes than they did in the recent past.  As it has in
previous reports, NCSL points out that earmarking is more likely to
hamper than assist state budgetary design and management.  Appendix
II details the NCSL report findings and lists the proportion of tax
revenue earmarked by state for fiscal year 1993. 


--------------------
\1 We define total receipts from the public to include total
receipts, total proprietary receipts from the public, total
offsetting governmental receipts, and total collections from the
public credited to expenditure accounts.  To determine the percentage
of total receipts from the public that were earmarked, we removed
intrafund and interfund transactions and offsetting collections from
federal sources from our earmarked total. 

\2 Budget Issues:  Earmarking in the Federal Government
(GAO/AFMD-90-8FS, Jan.  19, 1990). 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :1

To determine the extent of earmarking of federal revenues for fiscal
year 1994, we used an Office of Management and Budget budget
information system--the MAX budget system--to sort earmarked receipt
accounts by fund type.  We also used this database to identify
accounts with offsetting collections.  We did not independently
verify this information. 

The information on earmarked receipts by fund type includes
offsetting collections from the public and from federal sources as
well as intrafund and interfund transactions in the earmarked
receipts category. 

To determine the percentage of total receipts from the public that
were earmarked, we removed from our earmarked total intrafund and
interfund transactions and offsetting collections from federal
sources.  We did this in order to avoid double counting these
collections.  We divided this adjusted total by the $1,463 billion of
fiscal year 1994 receipts from the public to determine the percentage
of receipts from the public that were earmarked. 

Finally, we summarized the findings of a recent NCSL report to
provide information on the extent of earmarking at the state level. 

We performed our work in July 1995 in Washington, D.C.  We discussed
our summary of the NCSL report with NCSL officials. 


---------------------------------------------------------- Letter :1.1

We will send copies of this report to the Chairman, Senate Budget
Committee, and the Ranking Members of both House and Senate Budget
Committees.  We will make copies available to others on request. 

Major contributors to this fact sheet were Christine Bonham,
Assistant Director; Timothy L.  Minelli, Evaluator-in-Charge; and
John W.  Mingus, Evaluator.  Please contact me on (202) 512-9573 if
you or your staff have any questions. 

Sincerely yours,

Paul L.  Posner
Director, Budget Issues


EARMARKING BY FUND TYPE
=========================================================== Appendix I

The following sections and tables describe the different kinds of
accounts and identify earmarked receipts by receipt type within each. 
Account types are presented according to the dollar size of earmarked
receipts. 


   NONREVOLVING TRUST FUND
   ACCOUNTS
--------------------------------------------------------- Appendix I:1

Nonrevolving trust fund accounts record revenues collected for a
specific purpose or programs designated in law as trust funds. 
Nonrevolving trust fund accounts finance programs such as Social
Security, Medicare, and Superfund.  Other nonrevolving trust funds
include the Unemployment Trust Fund, the Highway Trust Fund, the
Airport and Airway Trust Fund, the Inland Waterways Trust Fund, and
the Harbor Maintenance Trust Fund.  Excluding receipts received from
intrafund and interfund transactions and offsetting collections from
federal sources, nonrevolving trust funds accounted for roughly $520
billion, or about 75 percent, of total earmarked receipts from the
public in fiscal year 1994.  Including these receipts adds another
$212 billion to the nonrevolving trust fund total.  Interfund
transactions, which include Department of the Treasury interest
payments to nonrevolving trust funds, accounted for over $206 billion
of this additional total. 

Table I.1 shows nonrevolving trust fund receipts by receipt type. 
These totals for types of receipts were drawn from the 330
nonrevolving trust fund receipt accounts, as well as the 14
nonrevolving trust fund expenditure accounts credited with offsetting
collections, in the fiscal year 1994 budget. 



                          Table I.1
           
              Nonrevolving Trust Fund Earmarked
                           Receipts

                    (Dollars in thousands)

                                                      Fiscal
                                                        year
                                                        1994
Receipt type                                          actual
----------------------------------------------------  ------
Receipts from the public
Social insurance                                      $461,4
                                                      75,337
Proprietary receipts\a                                32,285
                                                        ,248
Excise taxes                                          23,998
                                                        ,744
Customs duties                                        677,10
                                                           6
Corporate income taxes                                652,69
                                                           5
Miscellaneous receipts\b                              578,07
                                                           4
Offsetting collections from the public                510,32
                                                           5
============================================================
Subtotal                                              $520,1
                                                      77,529
Interfund transactions\c                              206,63
                                                       5,037
Intrafund transactions\d                              3,526,
                                                         608
Offsetting collections from federal sources           1,959,
                                                         422
============================================================
Total                                                 $732,2
                                                      98,596
------------------------------------------------------------
\a Proprietary receipts are collections from the public that arise as
a result of the government's business-type or market-oriented
activities.  Among these are interest received, proceeds from the
sale of property and products, and rents and royalties. 

\b Miscellaneous receipts include, among other things, proceeds from
the sale of seized goods, and gifts and donations. 

\c Interfund transactions are payments from one fund group, either
federal or trust, to a receipt account in the other fund group.  Such
transactions include Department of the Treasury interest payments to
trust funds. 

\d Intrafund transactions are those in which both the payment and
receipt occur within the same fund group. 


   PUBLIC ENTERPRISE REVOLVING
   FUND ACCOUNTS
--------------------------------------------------------- Appendix I:2

Public enterprise revolving fund accounts receive amounts generated
in a continuing cycle of business-type operations.  Examples include
the Postal Service and the Export Import Bank, which are both
government organizations originally established to be substantially
self-financed through the sale of their goods or services.  Excluding
offsetting collections from federal sources, public enterprise trust
funds accounted for about $126 billion, or 18 percent, of all
earmarked receipts from the public in fiscal year 1994. 

Table I.2 identifies offsetting collections credited to public
enterprise fund accounts.  These totals were drawn from the 115
public enterprise revolving fund accounts that received offsetting
collections in the fiscal year 1994 budget. 



                          Table I.2
           
              Offsetting Collections Credited to
               Public Enterprise Fund Earmarked
                           Accounts

                    (Dollars in thousands)

                                                      Fiscal
                                                        year
                                                        1994
Receipt type                                          actual
----------------------------------------------------  ------
Offsetting collections from the public                $125,8
                                                      22,415
Offsetting collections from federal sources           8,353,
                                                         263
============================================================
Total                                                 $134,1
                                                      75,678
------------------------------------------------------------

   SPECIAL FUND ACCOUNTS
--------------------------------------------------------- Appendix I:3

Special fund accounts are established to record receipts collected
from a specific source and earmarked by law for a specific purpose or
program.  Special funds operate like trust funds, the only difference
is that they are not designated as trust funds in authorizing
legislation.  The Nuclear Waste Fund is an example of a special fund
account.  This fund provides facilities for the disposal of civilian
and defense high-level nuclear waste and is funded, in part, through
a fee on the commercial generation of nuclear power.  Other examples
include the Historic Preservation Fund, administered by the National
Park Service, and the Presidential Election Campaign Fund.  Excluding
intrafund transactions and offsetting collections from federal
sources, special funds accounted for roughly
$16 billion, or about 2 percent, of total earmarked receipts from the
public in fiscal year 1994.  Including these receipts adds another
$762 million to the special funds total. 

Table I.3 shows special fund earmarked receipts by receipt type. 
These totals for type of receipt were drawn from the 244 special fund
receipt accounts, as well as the 11 special fund expenditure accounts
that were credited with offsetting collections, in the fiscal year
1994 budget. 



                          Table I.3
           
               Special Fund Earmarked Receipts

                    (Dollars in thousands)

                                                      Fiscal
                                                        year
                                                        1994
Receipt type                                          actual
----------------------------------------------------  ------
Receipts from the public
Customs duties                                        $6,309
                                                        ,746
Proprietary receipts                                  5,484,
                                                         578
Offsetting governmental receipts\a                    2,047,
                                                         920
Miscellaneous receipts                                1,984,
                                                         031
Excise taxes                                          425,32
                                                           2
Individual income taxes                               69,755
Offsetting collections from public                    60,518
============================================================
Subtotal                                              $16,38
                                                       1,870
Intrafund transactions                                676,01
                                                           8
Offsetting collections from federal sources           85,523
============================================================
Total                                                 $17,14
                                                       3,411
------------------------------------------------------------
\a Offsetting governmental receipts are based on the government's
sovereign powers but, unlike other tax receipts, are required by law
to be treated as offsets to outlays.  They include some receipts
designated as user fees, such as customs user fees. 


   GENERAL FUND ACCOUNTS
--------------------------------------------------------- Appendix I:4

General fund accounts are composed of all federal moneys not
allocated to any other account and are generally credited with all
collections not earmarked by law for a specific purpose.  However,
some general fund accounts also receive earmarked revenue in the form
of offsetting collections.  For example, the Federal Family Education
Loan Liquidating Account administered by the Department of Education
receives offsetting collections from the public upon the recovery of
defaulted student loans.  Excluding offsetting collections from
federal sources, general funds accounted for roughly $15 billion, or
about 2 percent, of total earmarked receipts from the public in
fiscal year 1994. 

Table I.4 identifies offsetting collections credited to general fund
accounts.  These totals were drawn from the 368 general fund accounts
that received offsetting collections in the fiscal year 1994 budget. 



                          Table I.4
           
              Offsetting Collections Credited to
                    General Fund Accounts

                    (Dollars in thousands)

                                                      Fiscal
                                                        year
                                                        1994
Receipt type                                          actual
----------------------------------------------------  ------
Offsetting collections from the public                $14,84
                                                       3,743
Offsetting collections from federal sources           49,356
                                                        ,992
============================================================
Total                                                 $64,20
                                                       0,735
------------------------------------------------------------

   INTRAGOVERNMENTAL FUND ACCOUNTS
--------------------------------------------------------- Appendix I:5

Intragovernmental fund accounts are specifically authorized by law to
facilitate financing transactions within and between federal
agencies.  An example is the General Services Administration's
Federal Buildings Fund, whose primary purpose is to build, operate,
maintain, and protect federally owned and leased buildings.  This
account receives rent from other government agencies.  Excluding
offsetting collections from federal sources, intragovernmental funds
accounted for about $7 billion, or roughly 1 percent, of total
earmarked receipts from the public in fiscal year 1994. 

Table I.5 identifies offsetting collections credited to
intragovernmental fund accounts.  These totals were drawn from the 45
intragovernmental fund accounts that received offsetting collections
in the fiscal year 1994 budget. 



                          Table I.5
           
              Offsetting Collections Credited to
               Intragovernmental Fund Accounts

                    (Dollars in thousands)

                                                      Fiscal
                                                        year
                                                        1994
Receipt type                                          actual
----------------------------------------------------  ------
Offsetting collections from the public                $7,074
                                                        ,699
Offsetting collections from federal sources           101,57
                                                       4,675
============================================================
Total                                                 $108,6
                                                      49,374
------------------------------------------------------------

   REVOLVING TRUST FUND ACCOUNTS
--------------------------------------------------------- Appendix I:6

Revolving trust fund accounts receive revenues generated in
business-type operations and are designated as trust funds by
statute.  An example is the Federal Deposit Insurance Corporation,
which receives insurance premiums paid by the financial institutions
it insures.  Excluding offsetting collections from federal sources,
revolving trust funds accounted for about $6 billion, or roughly 1
percent, of total earmarked receipts from the public in fiscal year
1994. 

Table I.6 identifies offsetting collections credited to revolving
trust fund accounts.  These totals were drawn from the 14 revolving
trust fund accounts credited with offsetting collections in the
fiscal year 1994 budget. 



                          Table I.6
           
              Offsetting Collections Credited to
                Revolving Trust Fund Accounts

                    (Dollars in thousands)

                                                      Fiscal
                                                        year
                                                        1994
Receipt type                                          actual
----------------------------------------------------  ------
Offsetting collections from the public                $6,112
                                                        ,229
Offsetting collections from federal sources           13,722
                                                        ,190
Total                                                 $19,83
                                                       4,419
------------------------------------------------------------

EARMARKING AMONG STATE GOVERNMENTS
========================================================== Appendix II

According to an April 1995 report by the National Conference of State
Legislatures (NCSL),\1 although earmarking may offer strategic
advantages in assuring funding for specific projects or services and
tying program benefits to program payers, it is more likely, on
balance, to hamper than assist state budgetary design and management. 
NCSL notes that earmarking removes revenues and expenditures from the
review that occurs in the appropriations process and reduces the
flexibility of the revenue structure, increasing the difficulty of
adapting budgets to changing economic conditions.  As a result,
earmarking makes comprehensive budgeting more difficult. 

NCSL reports that the average earmarked share of state tax
collections has remained near 23 percent since 1979.  NCSL adds,
however, that state legislatures appear to be turning more readily to
earmarking taxes than they did in the recent past. 

The report offers documentation for these observations.  Because
earmarked taxes often do not grow as fast as total state tax
collections, earmarking as a percent of total revenue tends to
decline in the absence of any policy actions to increase earmarking. 
NCSL reports that in most states where earmarking has decreased since
its September 1990 review of state earmarking, no policy changes were
made with regard to earmarking.  For example, NCSL reports that in
New Hampshire, the percent of earmarked revenues fell from 24 percent
in fiscal year 1988 to 14.2 percent in fiscal year 1993.  This
happened because New Hampshire's motor fuel tax, which is the only
tax New Hampshire earmarks, did not grow in proportion to total state
tax collections in the period.  The NCSL report identified several
examples of states reporting greater earmarking of sales and income
taxes to support funding for education, health, and social service
programs.  Also, 23 states now earmark some revenue sources for
environmental programs. 

NCSL reports that all 50 states earmark motor fuel taxes, generally
for state highway and other transportation purposes, such as mass
transit.  NCSL also reports that 33 states earmark a portion of their
general sales tax, and roughly half of the states earmark a portion
of their tobacco, alcoholic beverage, severance, and insurance taxes. 



                          Table II.1
           
            Proportion of Tax Revenue Earmarked by
                  State for Fiscal Year 1993

Region/State        Percent      Region/State        Percent
-----------------  --------  --  -----------------  --------
New England                      Plains
 Connecticut             10       Iowa                    22
 Maine                   12       Kansas                  25
 Massachusetts           39       Minnesota               16
 New Hampshire           14       Missouri                27
 Rhode Island             5       Nebraska                21
 Vermont                 13       North Dakota            22
                                  South Dakota            47
 Mid-Atlantic
 Delaware                 6       Southwest
 Maryland                17       Arizona                 30
 New Jersey              39       New Mexico              40
 New York                 8       Oklahoma                21
 Pennsylvania            11       Texas                   21

 Great Lakes                      Rocky Mountain
 Illinois                32       Colorado                20
 Indiana                 26       Idaho                   21
 Michigan                39       Montana                 64
 Ohio                    17       Utah                    55
 Wisconsin                9       Wyoming                 17

 Southeast                        Far West
 Alabama                 87       Alaska                   8
 Arkansas                13       California              19
 Florida                 28       Hawaii                   5
 Georgia                  6       Nevada                  57
 Kentucky                 4       Oregon                  21
 Louisiana               15       Washington              30
 Mississippi             26
 North Carolina          19
 South Carolina          17       Average               24\a
 Tennessee               60
 Virginia                25
 West Virginia           19
------------------------------------------------------------
Source:  National Conference of State Legislatures. 

\a This figure is a weighted average.  It is the average of the
earmarked share of total state tax collections, not the average of
individual state percentages. 


--------------------
\1 Earmarking State Taxes, National Conference of State Legislatures
(April 1995). 

